There are many functions of money. Broadly the functions are divided into the following three categories.
a. Primary functions:
The primary functions of money are the main functions of money. They are:
1. Medium of exchange
The most important function of money as the medium of exchange. The buying and selling of goods are done through the medium of money. Money makes it easy to exchange because it is Generally Accepted against goods. Money acts as the medium of exchange making economic life smooth.
2. Measure of value
Money is the standard thing that measures the value of all the goods and services produced in the economy. The value of goods and services is reduced to a single unit of account. As it measures the value of all economic goods and services, it is helpful in accounting for these values.
b. Secondary functions:
The secondary functions of money are the subsidiary functions of money. They are:
1. Store of value
Money also serves as a store of value. Goods and services can be sold for money and can be stored in the form of money. Money can be stored for a long time and at the same time money can be converted into goods and services as required. Thus Money has store value.
2. Transfer of value
Money has to transfer value because if money is transferred from one hand to another, the value of the transfer. In the same way, which assists like land and house can be transferred through Money. People transfer value by selling commodities or property to others and by buying commodities and property with others.
3. Standard of deferred payment
Standard of deferred for payment refers to the Future payment of the debt taken. The introduction of money makes it easier for future payment. It is very difficult for future payment in the absence of money. It means payment can be spread over a period of time. So, as a standard of deferred payment money facilities borrowing and lending activities.
c. Contingent functions:
Prof. Kinley has mention four contingent functions of money. These functions are as follows:
1. Distribution of national income
The total output of the economy is produced by the joint effort of the land, labor, capital, and entrepreneur. The rewards for these factors of production are rent, wage, interest, and profit respectively. Money makes it easy to play these factors in a common unit.
2. Maximum satisfaction
Consumers get maximum satisfaction by spending the money on the goods he wants. Similarly, the producer gets maximum satisfaction when profit is maximized. The payment in terms of money provides more satisfaction than the payment in terms of commodities. This is because with money we can exchange for the goods he wants.
3. Basis of Credit System
Credit plays an important role in business. Banks Provide credit to their loanees as money. Thus money is the basis of credit. The payments of cheques, pay orders, treasury bills are also in terms of money.
4. Liquidity
In economics, money is taken as a perfect liquid. This means money can be converted into goods and services easily. Personal wealth can be kept in the form of money. Money is liquid form helps its processor to spend it as and when needed. Thus, money act as the most liquid asset in the economy.
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