Money is the most critical monetary transaction that people engage in daily. There will be no marketing or economics in humankind without money, and money serves as a vital instrument of trade for both past and present commitments of humanity. Economists define money as commonly acknowledged in society and is used to exchange commodities and services.
Functions of Money:
Economists have generally formalized and defined all four sorts of functions of money, namely medium of exchange, measurement of value, the standard of postponed payments, and store of value.
- In terms of the Medium of Exchange, money has performed its primary purpose of serving as a medium of exchange in society since its introduction into the economic community. As a means of exchange, cash permits human monetary transactions to acquire and possess both tangible and intangible commodities and services. Manufacturers gain money by selling their products to wholesalers or retailers in return for cash. On the other hand, wholesalers and retailers sell the same finished items to ultimate consumers in return for money. Similarly, all society's service providers earn money by selling their services in exchange for cash. Then, all of these economic society segments, including manufacturers, wholesalers, retailers, and service providers such as physicians, attorneys, and others, would spend their profits on additional goods and services that they require or desire. 2013 (Harcourt). Without money, every money transaction for goods and services may have to be handled through barter trade, which involves the direct and absolute exchange of one commodity or service for ownership or use. The main problem with the barter system is that to receive a particular item or service from a seller, one must be able to supply another good or service of equivalent value to the good or service they want to possess, which the seller seeks. 2013 (Harcourt)
- In addition, as a Measurement of Value, it determines the fixed value of all types of commodities and services made and generated in the economy. Money serves as a unit of weight and serves as the benchmark for all products and services. Measuring and deciding the number or volume of commodities to be exchanged for another specific quantity of goods is challenging in barter commerce. Knowing the average worth of an item can help both the seller and the buyer make judgments regarding the number and volume of commodities to be traded. 2013 (Bullard)
- Furthermore, money can be used as a monetary transaction to pay for other commodities earlier or overtime, according to the Standard of Deferred Payments (Tilak, 2011). This means they can purchase products and services in increments over time, such as through a hire purchase agreement. Unlike barter exchange, transactions do not have to be settled in one single payment. 2012 (Upadhyaya) Money, in addition to working as monetary support for present transactions, also works as financial support for postponed or future costs, with loan repayments serving as an example.
- Money must be a Store of Value; it must maintain its value over time. As previously mentioned, it could not store the surplus-value of items in a barter system. Following the generation of money successfully resolved the following problem. Retailers and sellers may now put their excess retail earnings in a safe place. Saving money now has a stable worth without the risk of losing it. 2012 (Education) Rather than spending money right now, you may save it for later.
Characteristics of Money:
Society's complexity influences the features of what functions as money. A basic economy with few commodities and services, producers and consumers, and transactions may be able to exist with a type of money that would not work in a more complex society. Whatever acts as money must have a few general features in a modern economy.
- Money must be durable to be an efficient medium of trade and store of value. Durability refers to an item's capacity to survive all of life's challenges while remaining intact and useable over a lengthy period. (2011, SubraMoney) Money's capacity to serve the tasks of the medium of exchange and store value depends on its durability. Coins and paper notes are designed to function as money. Money nowadays is made from materials such as paper, metal, and plastic, resulting in a durable medium. (2011, SubraMoney)
- Money's portability, which also functions as a medium of exchange (Money Characteristics, 2011), indicates that it may be moved from one location to another and traded for products and services. Consumers may now carry money with them to utilize for transactions for products and services, known as portability. Capital is moved from one area to another without much effort nowadays since various sorts of money, such as currency notes, coins, and cards, may be readily carried in a wallet. (2011, SubraMoney)
- Furthermore, divisibility is a property of money that allows it to be split into small parts and utilized to exchange products and services. Because it is divisible, it may be used to acquire a wide range of items with varying values as a medium of exchange. Money, being a means of exchange, requires denominations to be traded for all products and services and everything in between. 2011 (Money Characteristics)
- Furthermore, uniformity implies that all sorts of money in the same denomination must have the same buying power. The ability to execute the role of the standard of postponed payments is a trait. (2011, SubraMoney)
- Limited supply is a feature that aids in the storage of money's value, implying that restrictions on the quantity of money in circulation guarantee that the currency's value remains constant. Currently, most governments have the task of controlling a sufficient money supply depending on market conditions through monetary policies such as expansionary economic policies. (2011, SubraMoney)
- Acceptability helps the medium of trade work. Money's most important attribute is that it must function as a universally acknowledged thing that can exchange for goods and services without hesitation. Acceptability refers to the ability of everyone to accept money for transactions. Money is widely recognized as a global means of exchange throughout the world. (2011, SubraMoney)
Finally, money's non-counterfeit ability, which serves as a store of value, ensures that it cannot replicate it. Because money is difficult to copy, it inhibits money's uncontrolled and unlawful creation. Furthermore, one of the primary reasons for establishing a government is to avoid money duplication. 2011 (Money Characteristics)
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