Marivic O. Ramos Sir.

Paul
ABM 12-C
What is Money?
Money is derived from a Latin word, Moneta, which was another name of Goddess Juno in
Roman history.
The term money refers to an object that is accepted as a mode for the transaction of goods and
services in general and repayment of debts in a particular country or socio-economic framework.

What are the Functions of Money?

Economists considered four main functions of money, which are a medium of exchange, a
measure of value, a standard of deferred payment, and a store of value.

These functions are broadly grouped into two categories, which are shown in Figure-1:

The different functions of money (as shown in Figure-1) are as explained as follows:
(a) Primary Functions:

Refer to the basic or original functions of money. The primary functions of money include:

(i) Medium of Exchange:

Refers to a function of money in which money is considered as a mode of exchanging goods.
The medium of exchange function is considered as the main and unique function of money as it has
solved the main problem of barter system of double coincidence of wants.

(ii) Measure of Value

Refers to a function of money that helps in determining the value of goods and services. The
value of all goods and services are expressed in terms of money. Money is taken as the common
denominator while measuring the value of goods and services in monetary terms.

The measure of value function of money has the following advantages:

1. Helps in comparing and calculating the exchange rates between two goods
2. Provides more meaningful accounting systems
3. Helps in determining and comparing national income of different countries
4. Helps in comparing the cost incurred on production and distribution and the revenue generated from
the consumption of goods and services
(b) Secondary Functions:
Refer to important functions of money that are obtained from primary functions.

The secondary functions of money are as follows:

(i) Store of Value:

Refers to a secondary function that has been derived from the medium of exchange function of
money. Generally, individuals store their wealth in the form of money. Therefore, money acts as an
asset that sustains value over a period of time.
(ii) Standard of Deferred Payments:
Refers to one of the most important functions of money. Deferred payments refer to payments
made on loans, salaries, pensions, insurance premium, interests, and rents. The necessary condition for
deferred payment is that the amount of repaid money should be the same as it was at the time of
purchase.

What are the Types of Money?

However, the different forms of money are classified into the following:
(a) Commodity Money:
Refers to a form of money as per the classical approach. The commodity form of money
involves commodities, such as cattle, grains, leather, skins, utensils, and weapons. However, in the
present time, commodity money is not preferable as it lack certain important characteristics of money,
such as uniformity, homogeneity, standard size and weight, portability, and divisibility.

(b) Metallic Money:

Includes money made up of metals, such as copper, brass, silver, gold, alloys, and aluminium.
The need for metallic money was realized due to the limitations of commodity money. However, the
exact period when metallic money was invented is unknown.

(c) Paper Money:

Refers to the form of money printed, authenticated, and issued by the government of a country.
Paper money is regarded as the most common form of money and constitutes a large part in the money
supply of a country. Some of the countries adopted the dual system of currency notes.

(d) Bank Deposits:

Refers to money that is in the form of current account deposits, saving account deposits, and
time deposits. This form of money was invented with the evolution of the banking system. Unlike
metallic money and paper money, this form of money cannot be passed hand to hand for purchasing
goods and services.

Reference/Source: http://www.economicsdiscussion.net/money/money-functions-approaches-and-types/4061