Sharing Wisdom and Vivid Memories of Life

What is Money? Meaning Definition Functions of Money

square What is Money? Meaning

Money is one of the greatest inventions of mankind. According to Walker,

"Money is what Money does."

money meaning definition functions

Image Credits © Mark Morgan.

In a wider sense, Money includes all mediums of exchanges like Gold, Silver, Copper, Paper, Cheques, and Bills of exchange, etc.

square Definition of Money

According to Crowther,

"Anything that is generally acceptable as a means of exchange and which at the same time acts as a measure and store of value."

Thus, Anything is Money, which is generally acceptable as a medium of exchange, and at the same time it must act as a measure and a store of value. Anything implies a thing to be used as money need not be necessarily composed of any precious metal. The only necessary condition is that, it should be universally accepted by people as a medium of exchange.

square Functions of Money

Money performs five important functions :-

  1. Medium of exchange : Money acts as a medium of exchange as it's generally accepted. On the payment of money, purchase of goods and services can be made i.e. goods and services are exchanged for money. Money bifurcates buying and selling activities separately so it facilitates the exchange transactions.
  2. Measure of value : Money is a common measure of value so it is possible to determine the rate of exchange between various goods and services purchased by the people. Exchange value of commodity can be expressed in terms of money. For e.g. we can say that 10 metres of Cotton Cloth cost $220 dollars or Rs.10,000 rupees only.
  3. Store of value : Money acts as a store of value. Money being generally acceptable and its value being more or less stable, it is ideal for use as a store of value. Being non-perishable and also comparatively stable in value, the value of other assets can be stored in the form of money. Property can be sold and its value can be held in money and converted into other assets as and when necessary.
  4. Standard or Deferred payment : Money is also inevitably used as the unit in terms of which all future or deferred payments are stated. Future transactions can be carried on in terms of money. The loans, which are taken at present, can be repaid in money in the future. The value of the future payments is regulated by money.
  5. Transfer of value : Value of any asset can be transferred from one person to another or to any institution or to any place by transferring money. The transfer of money can take place irrespective of places, time and circumstances. Transfer of purchasing power, which is necessary in commerce and other transactions, has become available because of money.

1 Comment:

  1. Anonymous said...

    Very useful information for understanding the basic knowledge of money. Mainly helps economic students. Hope, you come up with such other studies which can help many students!

Please Comment