What is Money | Functions of Money : UPSC Planner Economy

Money is derived from a Latin word, Moneta. The money is a term refers to an object that is accepted as a mode for the transaction of goods and services in general and repayment of debts, medium for transaction of goods.
Money can be in various forms, such as notes, coins, credit cards, debit cards, bank checks even cryptocurrencies.
Money serves a set of functions and have a set of properties.

Primary functions	Secondary	Contingent
1. A Medium of Exchange 2. A measure of Value	1. Store of value 2. Transfer of value 3. Standard of Deferred Payments	1. Basis of Credit creation 2. Employing factor inputs 3. Creation & Redistribution of National Income 4. Liquidity

Functions of Money 💰

[1] Medium of Exchange

Money acts as a mode of exchanging goods.
It has solved the main problem of barter system of double coincidence of wants.
Money also provides a freedom of choice purchasing a good.
E.g. A Fruit seller can sell goods to his customer and in return can demand money for his fruits. Customer can use the money to buy another goods from different seller.

[2] Measure of Value

Money helps in determining the specific value of goods and services.
calculating the exchange rates between two goods
Money serves a “measure” or “unit” by which, we can measure the value of goods and services, also compare their pricess.
E.g., we can measure and compare the National incomes of different countries.

[1] Store of Value

Money acts as an asset that sustains value over a period of time. It is the most liquid asset.
It is like a store of wealth for future use.
E.g., A person can save his salary and spent it later according to his needs at different times.

[2] Transfer of Value

Today, Cost of transporting money from one place to another is very less. (Compared to the time when barter system was in use)
With improved technology in banking system, interstate and international trades are increasing.
E.g., NEFT and RTGS are facilities offered by RBI. They help transfer money using internet from one bank account to another.

[3] Standard of Deferred Payments

Deferred payments refer to payments made on loans, salaries, pensions, insurance premium, interests, and rents.
Money acts as a ‘standard’ for making future payments.
E.g., A person paying his EMIs on his home loan.

Durability : We can use money over and over again to settle many transactions. Material used to make money generally last for a long time without losing its value.
Portability : We can easily carry or transfer money from one place to another.
Divisibility : When we divide the money, we can buy different products of different values
Uniformity
Limited supply : money have a limited supply (scarcity), thereby giving it value
Acceptability
Fungible : Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type, substantially equal value. Money is Fungible.

What is Money | Functions of Money