Functions of Money

Functions of Money

Functions of money are classified into Primary or Main functions, Secondary functions and Contingent functions.

Primary or main functions

The important functions of money performed in every economy are classified under main functions:-

i. Medium of exchange or means of payment

Money is used to buy the goods and services.

ii. Measure of value

The values of all the goods and services are expressed in terms of money. It is easier to determine the rate of exchange between various type of goods and services.

Secondary functions

The three important secondary functions are

i. Standard of deferred payment

Money helps the future payments too. A borrower borrowing money today places himself under an obligation to pay a specified sum of money on some specified future date.

ii. Store of value or store of purchasing power

Savings were discouraged under barter system as some commodities are perishable. The introduction of money has helped to save it for future as it is not perishable.

iii. Transfer of value or transfer of purchasing power

Money makes the exchange of goods to distant places as well as abroad possible. It was therefore felt necessary to transfer purchasing power from one place to another.

Contingent functions

i. Basis of credit

ii. Increase productivity of capital

iii. Measurement and Distribution of National Income

 Hots : If there is no invention of money - imagine.

Answer: Money is one of the most fundamental inventions of mankind. “Every branch of knowledge has its fundamental discover”. In mechanics, it is the wheel, in science fire, in politics the vote. Similarly in economics, in the whole commercial side of Man’s social existence, money is the essential invention on which all the rest is based.

Inflation and Deflation

Inflation refers to the prices are rising, the value of money will fall. Deflation refers to the prices are falling, the value of money will rise.