Functions of Money,

Money has overcome the difficulties of barter. Crowther, has defined money
as “anything that is generally acceptable as a means of exchange (i.e, as a means of
settling debts) and that at the same time acts as a measure and as a store of value”.
An important point about this definition is that it regards anything that is generally
acceptable as money. Thus money includes coins, currency notes, cheques, bills
of exchange, credit cards and so on. That is why prof. Walker has said: “money is
that which money does”. By this, he has referred to the functions of money. Money
performs many functions in a modern economy. The most important functions of
money are given in the form of a couplet quoted below :-
“Money is a matter of functions four
A medium, a measure, a standard, a store”.
Thus, money, is a medium of exchange, a measure of value, a store of value
and a standard of deferred payments.

1. M edium of exchange : The most important function of money is that it acts as
medium of exchange. Money is accepted freely in exchange for all other goods.
Barter system is very inconvenient. So the introduction of money has got over
the difficulty of barter.

2. M easure of value : Money acts as a common measure of value. It is a unit
of account and a standard of measurement. Whenever we buy a good in the
market we pay a price for it in money. And price is nothing but value expressed
in terms of money. So we can measure the value of a good by the money we
pay for it. Just as we use yards and metres for measuring length and kilograms
for measuring weights, we use money for measuring the value of goods. It
makes economic calculations easy.
3. Store of value : A man who wants to store his wealth in some convenient form
will find money admirably suitable for the purpose. It acts as a store of value.
Suppose the wealth of a man consists of a thousand cattle. It is rather difficult
for him to preserve his wealth in the form of cattle. But if there is money, he can
sell his cattle, get money for that and can store his wealth in the form of money.
4. Standard of deferred payments : Money is used as a standard for future
(deferred) payments. It forms the basis for credit transactions. Business in
modern times is based on credit to a large extent. This is facilitated by the
existence of money. In credit, since payment is made at a future date, there
must be some medium which will have as far as possible the same exchange
power in the future as at present. If credit transactions were to be carried on the
basis of commodities, there would be a lot of difficulties and it will affect trade.
Money, to be used as a medium of exchange, must be universally acceptable.
All people must accept a thing as money. Or, the Government should give it legal
sanction. And for performing the other two functions, that is, to be used as a store of
value and standard of deferred payments, money should have stability of value. In
other words, the value of money should not change often.