What Is The Definition And What Are The Functions Of Money?

According to the earlier definitions, "money is a commodity which is generally acceptable as a medium of exchange and at the same time it acts as a measure and a store of value ". This is why professor Sigwick says "money is what, what money does. Thus the economists agree that anything which is to serve as money should be:

1 generally acceptable
2 could be used to measure the values of goods and services
3 could be used to store the values.
Thus keeping in view the above mentioned role and functions of money the experts follow the following methods to define money:
1 Transaction Approach which accords money as a medium of exchange.
2 Liquidity Approach which accords money as a temporary store of value.
3 Scientific Construct Approach which accords money as a measure of value.

In the early times there was barter system which is furnished with a lot of problems. Accordingly, the barter system had to be abandoned and money came into practice in one way or the other way. Thus, money what so ever its form is performing the following functions:
1 money is a medium of exchange
2 money is a measure of value
3 money is a store of value

It is classified as static and dynamic manner. In static functions of money the basic is following. Money as a medium of exchange: Money represents general purchasing power. It facilities trade by providing a medium which every person is willing to accept in exchange for goods and services or in payments of debts. The use of money has overcome the defects of barter system.

Money as a common measure of value: Another basic function of money is that it serves as a common measure of value. It is a common denominator by which we can measure and compare the values of different goods and services. Money, in other words, act as a yardstick of values and commodities.

Dynamic functions of money: Money has the potential to influence the economy. It influences the price level, interest rates, utilization of resources etc. Aid to specialization, production and trade: The use of money has helped in removing the difficulties of barter. The market mechanism, production of commodities, specialization, expansion and diversion of trade etc, have all been facilitated by the use of money.

Money is an instrument of making loans: People save money and deposit it in banks. The banks advance these savings to businessmen and industrialists. Money is thus the instruments by which savings are transferred into investments.