Objectives of Money

Objectives of Money-What are the Objectives of Money

To keep value safe, use money. Unless inflation is very high, money will keep its ability to buy things. Maybe a scoop of ice cream? Possible drop in value of other ways to trade. Last but not least, money is used in finance as a way to measure things. It is the most basic way to measure things in our books. In this article, we will discuss about objectives of money in brief with examples for your better understanding.

For money, people trade goods and services. It’s likely that people would trade instead of using money. With a universal medium of exchange, people don’t have to share their needs, so they don’t have to barter in an inefficient way.

Objectives of Money

You can also read importance of money for more knowledge purpose. Keeping a trade surplus, bringing down inflation, and growing the economy are all good things to happen. Among the goals of monetary policy are keeping prices stable and making sure there is a good balance of foreign currency reserves. The objectives of money will be covered in-depth in this article, along with some examples for your convenience.


In recent years, politicians and economists all over the world have been talking a lot about economic growth. Prof. Meier called the process by which a country’s real income per person goes up over time “economic growth.” It means that the amount of goods being made to meet people’s needs has gone up.

To keep national and personal economic growth going, it is important to use all of the natural, human, and financial resources we have. So, monetary policy is important for keeping the economy growing because it tries to find a balance between money demand and production capacity while also encouraging people to save and invest. If you want a good supply and demand curve, you need a flexible monetary policy.


People who use money must make sure it is real. It’s very important that everywhere accepts the money. Disagreements occur on the forex market when currencies aren’t recognized. When people trust the money they use, they respect the way money works.

Measurement of Money

How much money is there? What does it look like? Investors and economists use this question to figure out how fast prices are going up or down. With three units of money, you can make more accurate calculations.

Fiscal Independence

Wicksteed, Hayek, and Robertson all agree that money should be neutral. They want the people in charge of money to work for neutral money in the economy. The Fed’s decisions about interest rates are the source of all economic uncertainty. Neutralists say that changing the currency will throw the economy into chaos.

They think that we wouldn’t have to worry about inflation, deflation, business cycles, or changes in consumer prices if we had a neutral monetary policy. Now, the system of money is more stable. Because of this, the main goal of the monetary authority is to keep the money market neutral. All systems of money need to be safe. It shouldn’t change how much is made or how much is used.

Full-time Employment

The global downturn caused more people to lose their jobs. It is a waste of money, bad for society, and wrong. So, one goal of monetary policy is to get as many people working as possible. Most people now agree that full employment protects against price and currency changes.

Subject to Market Conditions

Money can be anything of value that moves around freely in economic transactions without being directly traded.

Social Income Distribution

The primary objectives of money are the distribution of social income. Money makes it easy to divide up money earnings. For example, a school’s payroll, wages, and electricity costs.

Nature of Money

Short-term money market instruments, most of which are government securities, are traded to make investments. On the money market, there are also deposits at other banks, bankers’ acceptances, certificates of deposit, and commercial papers from companies outside the financial sector. The money markets pay for the government deficits without causing inflation.

Medium of Exchange

Bartering was the first way that people traded things for money. If one person had something the other wanted, they would trade goods.

Stabilizing the Business Cycle

Monetary policy impacts both actual and expected GDP. It helps businesses in developed countries operate in a way that stabilizes the economy. It doesn’t work as well in places that are very deep.

Different Ways of Money

Throughout history, many things have been used as money, such as wampum (shell beads) and cowries (brightly coloured shells) by the American Indians, whales’ teeth by the Fijians, large stone discs on Yap, tobacco by the early North American colonists and cigarettes by people today. The word “pecuniary” comes from the Latin word “pecus,” which means “cattle.” Several new ideas have helped money grow and change over time.

Stability of Exchange Rates

The goal of the central bank was to keep the exchange rate stable. This was the main goal of the countries that used the Gold Standard. Because of the changes, imbalances in the balance of payments between countries were automatically fixed. By cutting down on the current account deficit, this method will bring back monetary balance.


In the 1920s and 1930s, it was important objective of money is to keep prices stable. Keynes and Crustar Cassels both said that the goal of monetary policy should be to keep prices steady. The main goal of monetary policy is to keep the cost of living stable. When prices stay the same, consumers can trust them.

Creation of Credit

Banks can give credit because money can be useful as a “store of value.” How demand deposits gave rise to credit. To put it another way, money is the easiest asset to change into something else. Use cash, a credit card, or a debit card.

Perceptions Influence All

The second kind is “fiat money,” which has no real value. The value of a fiat currency depends on how the market works and how much people trust it. In the past, when gold was scarce and civilizations that grew quickly didn’t always have enough gold to back their currency, fiat money was created.

Affordable Price Stability

The main goal of monetary policy is to keep prices stable. Investment activity is driving up prices too much in developing countries like India because agricultural output is declining. The fact that food prices in India are going up is proof of this. This is one of the important objectives of money.

Monetary policy can help smooth out short-term price changes like this. In developing countries like India, where the economy is still changing, this leads to inflation. Economists call a price hike that is just a little bit more than what is needed to cover costs a “modest” price hike, which is good for business. P. A. Samuelson says that 3% to 4% annual inflation helps trade and industry and speeds up economic growth.

Keeping a Balance of Payments

Balance of payments balance was also a goal of monetary policy after the war. The problem with international liquidity is that world trade is growing faster than international liquidity. When a country’s balance of payments is negative, it is less able to do other things.

Many developing countries now have to drastically cut their imports, which hurts their economies and slows down their growth. So, the monetary authority tries to keep the balance of payments in balance.

Frequently Asked Questions

What are the Different Types of Money?

There are three types of money: commodities, fiat money, and bank money. Money is a good or service. Gold coins can be bought and sold. Most countries now use fiat money instead of commodity money.

Why does Measuring Money in an Economy Matter?

Economists keep track of the amount of money because it affects the economy. The Federal Reserve’s Board of Governors and Federal Open Market Committee decide on monetary policy.

What Controls the Quantity of Money?

The actions that central banks take on the open market, like buying and selling government bonds, affect the amount of money in the economy. Central banks will buy government assets from commercial banks and other financial institutions in order to make more money available.


Money is the tool that puts national monetary policy into action. The goals of monetary policy include helping the economy grow, making the economy more equal, and keeping prices stable. During the first 10 years, planning was mostly about bringing back old ways of handling money. We will go over the objectives of money in detail in this article.

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