What is Money?

Money issues have involved humans from the time of Aristotle to the present. Paper categorized for $ 1, 10 Euros, one hundred Yuan, and 1,000 yen is a touch specific from paper of the equal length torn from newspapers and magazines, however the proprietor can order a few food. , Drinks, apparel and different family objects are handiest appropriate for lighting. What’s the difference? The easy and accurate solution is that contemporary-day cash is a social ingenuity. People be given cash that manner due to the fact they understand that others do. This not unusual place feel makes a bit of paper precious due to the fact everybody thinks it’s miles. Also, in my experience, cash has usually been time-honoured in trade for precious goods, assets, or services. After all, cash is a social exercise, however an uncommon power exercise that humans comply with even below intense provocation. Of course, the power of this treaty is that it permits governments to make cash via way of means of inflating (increasing) the currency. But it is now no longer indestructible. When the quantity of those papers will increase significantly, inclusive of at some stage in and after the war, cash can also additionally appear to be not anything extra than paper after all. If the social association to preserve cash as a medium of trade collapses, humans will search for options inclusive of cigarettes and cognac that have been briefly used as a medium of trade in Germany after World War II. In much less intense situations, new cash can also additionally update vintage cash. In many nations with records of excessive inflation, inclusive of Argentina, Israel and Russia, the fee of the greenback is extra solid than the neighbourhood currency, so charges can be anticipated in different currencies inclusive of America greenback. In addition, the greenback is widely known and the United States of America’s citizens be given the greenback as a medium of trade as it affords an extra solid shopping electricity than the neighbourhood currency.

Functions of Money:

Money performs various functions. Mainly the functions of money can be classified into three groups’ namely

 (i) Primary functions (ii) Secondary function    (iii) Contingent functions

1) Primary function: Primary functions are basic or fundamental function of money. In fact, they are the original functions of money which ensure smooth working of the economy. Following are the primary functions:

a) Medium of exchange: Money acts as an effective medium of exchange. It facilitates exchange of goods and services. Everything is bought and sold with help of money. By performing as the medium of exchange, money removes the difficulties of barter system.

b) Measure of value: Money serves as a common measure of value. The value of all goods and services are measured in terms of money. In other words, pieces of all goods and services are expressed in terms money.

2) Secondary function: Secondary functions are those functions which are derived from primary function.

a) Standard of deferred payment: Money acts as an effective standard of deferred payments. Deferred payments refer to payment to be made in future. Deferred payments have become the day to day activity in modern society. Money facilitates all kinds of credit transactions. Both, borrowings as well as lending are done in terms of money. All kinds of Hire purchase transactions are carried out in terms of money. As money enjoys the attributes of stability, Durability and General acceptability, it acts as a better standard of deferred payments.

b) Store of value: Money serves as a store of value. Savings were discouraged under the barter system due to lack of store of value. With inventions of money, it is possible to save. At present all savings are done in terms of money. Bank deposits represent the savings of the people. Moreover, money can be easily converted into any other Marketable assets like Land, Machinery, Plant, etc. Thus it facilitates capital accumulation. Money being the most liquid assets, it acts as a better store of value than any other assets.

c) Transfer of value: Money acts as a means of transferring purchasing power. Money facilitates transfer of value from one person to another person & one place to another place. As money enjoys general acceptability, a person can dispose of his property in Delhi and purchase new property at Mumbai. Instrument like cheques and bank drafts enable such transfer easy and quick.

3) Contingent function: In additions to the above functions, money has to performs certain special function known as contingent functions –