Top 10 – Functions of Money

Functions of Money-What are the Functions of Money

Seeking money as a goal in and of itself is not a good thing. Dollar bills are not something you can eat, and you can’t wear your savings account. Money is valuable because you can trade it for things like goods and services. We can’t really say that our money is a blessing until we’re able to share it with people who need it. Since money is usually exchanged, both consumers and business owners must be willing to take it as payment. Because money systems have changed a lot over time and across cultures, it was important that this idea of money be flexible. This topic outlines functions of money which will assist you to achieve desired goals in your life.

Money’s main and most important job is to be used as a way to buy and sell things. When there is a big economy, it is hard to do barter trades because the costs are so high. This means that people will have to keep looking for people to trade their extra goods and services with.

Top 10 – Functions of Money

There are two main ways to use money: the primary uses and the secondary uses. Here are some of the most important ways money is used: The primary functions of money are those that are most important to its purpose. The secondary functions are those that are related to or come from the primary functions. The functions of money will be covered in-depth in this article, along with some examples for your convenience. Stay up-to-date by reading regularly on classifications of money.

Measure of Value

An “economic unit of account” is a standard numerical unit of money that is used to figure out how much something costs in the marketplace. A “measure” or “standard” of relative value and delayed payment is another name for a “unit of account.”Business agreements, including debt, require a unit of account.

Money is both a way to buy and sell things and a unit of account. So, it gives a starting point for both quoting prices and negotiating. Functions of money are essential for making accounting systems that work well.

Wealth Storage Money

Because storage services are hard to get to and a lot of things go bad quickly, people in the modern world need better ways to store their money. Money is easy to put away, get back, and spend at a later time. Even more so, money tends to keep most of its value during times when inflation is low.

Deferred Payment Standard

If money can buy now, it’s okay to buy now and pay later. The postponed payment standard allows us to buy things right away and pay for them later, as demonstrated by loans and future agreements that show the payments in money. So, money is a way to buy and sell things, a place to store value, a unit of account, and a stand-in for payments that aren’t yet due.

Metallic Currency / Money

Many places, particularly in the past, have used gold and other valuable metals as money. Stable value, divisibility, difficulty of counterfeiting, and high value-to-weight ratio made them ideal for both short-term and long-term transactions. Precious metals often serve as a long-term way to invest and protect money because they don’t lose value over time.

On the other hand, some people say that the expectations of the public play a role in whether or not they work as wealth reservoirs. Because people will continue to value them highly, their price is likely to stay the same. Because of this, people are likely to keep buying a lot of jewelry and other decorative items.

Unit of Account

People can use this unit of account to determine the value of goods and services when exchanging them for money. This is another thing that money does.

The price of a good is an important piece of information for both the seller and the buyer to think about when deciding how much to buy or sell. The functions of money also include serving as a unit of account, providing a common denominator for pricing goods and services.

Store of Value

For money to be useful as a way to trade goods and services, it needs to be a safe way to keep its value. If money loses its value as an exchange good when stored for a certain amount of time, it wouldn’t function as a means of buying and selling things because it wouldn’t address the issue of two people having the same needs simultaneously.

In addition to money, land, works of art, baseball cards, and stamps can all be used to store value. All of these things, including money, land, works of art, baseball cards, and stamps, can store value.

Money is not any different from these other things. Since inflation is destroying the value of money at an alarming rate, it may not even be a good way to save money. Money is more liquid than other ways to store value because everyone uses it as a way to buy and sell things.

Because of this, money is the easiest resource to change. Money is also a versatile way to store value because it is easy to trade and comes in many different amounts. Another function of money is to act as a store of value, allowing individuals to save and hold onto their wealth.

Money Supply

Now that we know why money exists, we can move on to the next question: where can we find it? How well can the total amount of money held by people, businesses, and the government be “counted”? To get started, you could add up how much you have saved up for small expenses.

Bills and coins are examples of physical cash. Demand deposits and checking accounts that pay specific amounts to “payees” on demand are examples of electronic cash. Most of the time, when people talk about checking accounts, they mean “demand deposits.”

Medium of Exchange

One of the primary functions of money is to serve as a medium of exchange. This means that money helps bring the buyer and the seller together. The accountant no longer does business with clients in exchange for shoes, but instead for money.

As the next step, they spend the money on shoes. Money only serves as medium of exchange if usable for goods/services, labor, financial capital in diverse markets.

Transfer of Value 

Money transfers value, usable for purchases inside/outside borders. People anywhere in the world and on any market can use money to buy or sell things. Market liquidity & stability maintained by available funds. Money also plays a crucial role in facilitating transactions by providing a common unit of measurement for goods and services.

Basis of Credit

Funding loans enables the making of other loans. People who borrow money can use it to buy things like food, shelter, and medical care. For example, a married couple would need a lot of money to be able to furnish their whole house all at once. They can’t buy big-ticket items due to lack of cash, no need to wait 10+ years. This is one of the primary functions of money from many years.

Frequently Asked Questions

Why Money is Used in Modern Economy?

Money’s main purpose is to make it easier to buy or sell other things. It’s a great way to avoid the hassles of bartering the old-fashioned way. Anyone can use it for any transaction and for purchasing any good or service. Makes direct commerce possible by preventing simultaneous wants for the same item.

What is the Primary Function of Money?

Money is a way to trade because you can buy and sell almost anything with it at any time. Here, money is doing one of its most important things. So, people can trade goods for money.

How does Money Get its Value?

Supply and demand, and other items supply and demand, determine item price. To buy something, you have to pay its price. Inflation occurs when the prices of goods increase. In other words, the buying power of money goes down when compared to the cost of goods.


Money is a way to buy and sell things and pay for things. This is the one that most people agree is the main use for money. Trading goods for each other creates money in the form of a generally accepted good immediately as a unit of account and a measure of value. Check out these functions of money to enhance your knowledge.

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