Functions of Money

The subject of money is one that has been embraced by a number of economists who have advanced innumerable definitions of money depending on the various schools of thought.

In this particular case, money is defined as a medium through which goods and services are exchanged. Renowned economists of different schools of thought agree that there are four primary functions of money.

One of the functions of money is the storage of value mainly due to its durability. It can be stored over long periods and still retain its capacity of usability once retrieved. Unlike in barter trade, money cannot decay or decompose. Another function of money is that it acts as a medium through which the worth of products can be determined and expressed. Goods and services are valued in terms of money depending on their worth. In this regard, commodities have a common unit through which their value is measured. For example, a new brand of a product with improved features will cost more than the old brand indicating that the new brand is of a greater value than the obsolete one.

Money also serves as a vehicle through which goods and services are traded. In this regard, it is universally acceptable in the acquisition of goods and access to services For example, when you buy a new pair of trousers, you pay for it with money. It is free from double coincidence of wants, a vice that crippled barter trade where the buyer had to have something of interest to the seller for the seller to accept the trade.

Finally, money can be used to settle current debts in future without the risk of catastrophic losses to the creditor. This means that money is reliably efficient in the settling of debts in the future.

Deferred payments include payment of salaries, interests, insurance premiums, loans and pensions. It is important to realize that the functions of money are interconnected and complement each another.

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