types and functions of money

According to the nature and uses there are different forms of money.

The critical thing to note about commodity money is that its value is defined by the intrinsic value of the commodity itself. Money as a unit of value also facilitates accounting. Money is the basis of the credit system. Professor Coulborn defines money as “the means of valuation and of payment; as both the unit of account and the generally acceptable medium of exchange.” Coulborn’s definition is very wide. Thanks for the information. On the other hand, a fall in the value of money over time brings losses to creditors and windfalls to debtors. Thus besides legality, there are other determinants which go to make a thing to serve as money. Money links the present values with those of the future. When money acts as a medium of exchange, it means that it is generally acceptable. This is used to display charts and graphs on articles and the author center. But people may not accept legal money by refusing to sell goods and services against the payment of legal tender money. In economics, money is defined as a generally accepted medium of exchange for goods and services.

The introduction of money as a medium of exchange decomposes the single transaction of barter into separate transactions of sale and purchase thereby eliminating the double coincidence of wants. (i) Money as a Standard of Deferred Payments: The third function of money is that it acts as a standard of deferred or postponed payments. Now, modern form of money is more easy to assign value for any commodity. It simplifies borrowing by consumers on hire-purchase and from house-building and cooperative societies.

“They may, for example, choose between holding wealth in currency, demand deposits, time deposits, savings, bonds, Treasury Bills, short-term government securities, long-term government securities, debentures, preference shares, ordinary shares, stocks of consumer goods, and productive equipment.” All these are liquid forms of wealth which can be converted into money, and vice-versa. Thus the definition used for empirical purposes is unimportant because different definitions will give different results. When values are expressed in terms of money, the number of prices are reduced from n(n-l) in barter economy to (n-1) in monetary economy. Examples of fiat money include coins and bills. On the basis of crude empirical tests, the Committee did not find either direct or indirect link between money and economic activity via the interest rate. Money solves all the problems associated with barter trade or the Barter system. They are: (i) Money as the Most Liquid of all Liquid Assets: Money is the most liquid of all liquid assets in which wealth is held. It was easy under barter to take loans in goats or grains but difficult to make repayments in such perishable articles in the future. In such a case the money receiver can reject the payment. Economics from the University of Calicut.

IRSHAD CV has been a student in Economics. Fiat money, on the other hand, gets its value from a government order.

If they fail to do so, they may be fined or even put in prison. According to Friedman, “The definition of money is to be sought for not on grounds of principle but on grounds of usefulness in organising our knowledge of economic relationships.”. If the consumer has a scooter and in the near future he needs a car, he can buy a car by selling his scooter and money accumulated by him. Legal tender means that money is a lawful payment that someone offers to meet a financial obligation. Giving a perfect definition for money is something very difficult.
functions of money is it in terms of India. In olden times agricultural products, livestock, gold, silver etc were used as money. Forms of Money. This site uses cookies (e.g. Money performs numerous functions. This happens when the ratios of the marginal utilities and prices of the various goods are equal. Various economists and monetary experts defined money from different angles.

Some articles have Google Maps embedded in them. This is done when the various goods and services produced in a country are assessed in money terms. We partner with Say Media to deliver ad campaigns on our sites. Thus money gives us a good deal of economic independence and also perfects the market mechanism by increasing competition and widening the market. As pointed out by Scitovsky, “Money is a difficult concept to define, partly because it fulfills not one but three functions, each of them providing a criterion of moneyness … those of a unit of account, a medium of exchange, and a store of value.”, Image Courtesy : upload.wikimedia.org/wikipedia/commons/b/b3/Money_IL_WV.JPG, Though Scitovsky points toward the difficulty of defining money due to moneyness, yet he gives a wide definition of money. Money helps in measuring national income. 4. The credit instruments drawn by businessmen have always cash guarantee supported by their bankers. The main aim of the producer is to maximise his profits. This is actually meant by inside money. There are many other functions which money is performing other than primary and secondary functions. It makes possible contracts for the supply of goods in the future for an agreed payment of money.

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Please choose which areas of our service you consent to our doing so. We discuss these functions one by one. In the last analysis money facilitates trade. Report a Violation, Definitions of Money: Legal, Functional, Basis of Liquidity, Basis of Scope, Entrepreneur: 19 Important Functions Performed by an Entrepreneur.

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