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Essay on Money: Meaning and Main Functions of Money

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The word money was derived from the Latin word ‘Moneta’. Actually, the first mint was set up in the temple of Goddess Moneta in Rome.

The various stages of evolution of money are commodity money, metallic money, paper money, credit money and plastic money.

Before the introduction of money, there was ‘Barter System’ where goods were exchanged with the goods only. However, there were some serious drawbacks in the ‘Barter system’. To solve all these problems and to facilitate transactions, money in the form of coins, notes has been introduced. According to Walker, “Money is what money does.”

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According to Crowther, “Anything that is generally accepted as a means of exchange and that at the same time acts as a measure and as a nature of value.” Thus, money is the combinations of currency notes, coins and demand deposits.

Main Functions of Money:

The following are the main functions of money:

(i) Medium of Exchange:

It is most fundamental function of money. All the economic transactions take place in terms of money. Thus, money acts as the medium of exchange and it overcomes all the problems of barter system.

(ii) Measure of Value:

It is another important primary function of money. Money helps to measure the value of all goods and services, because all the prices can be expressed in terms of money. For example, a dozen of banana is Rs. 20 or the fees of a doctor is 200 etc. are all expressed in money forms. Hence, money helps to measure the rate of exchange of different goods and services.

(iii) Store of Value:

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Money acts as the store of value. In the time of ‘Barter System’, saving was an important problem. However, invention of money has solved the problem forever. Any good or commodity can easily be stored in form of money for life-long time or more.

(iv) Standard of Differed Payments:

It also acts as the standard of deferred payment. It implies that borrowing and lending operations can be done in terms of money.

Thus, we can make a rhyme on the basis of above functions:

‘Money is a matter of functions four, A medium, a measure, a standard and a store’.

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