What Is Money And Its Classifications

Money is that which is generally accepted; whenever we need to buy anything, we can easily purchase it by paying money. The value of the money we pay is what makes it a medium of exchange. Thus, money is a commodity that is accepted as a means of payment in all kinds of transactions. Through money, any goods can be bought or sold because no individual or organization can refuse to accept money, as it is declared by the government.

(“Any object that is generally accepted as a means of exchange and also as a measure and store of value is called money.”)

(“Money includes all those objects that, at any given time or place, are commonly used as a means of buying goods and services and paying expenses without doubt or special investigation.”)

Therefore, such a commodity can be considered money if it is accepted as a medium of exchange and as the final payment of debts. Based on this, we cannot accept instruments like cheques, bills of exchange, etc., as money. Only metal coins and paper currency are included as money.

The Classification Of All The Functions Of Money Is As Follows

1.Primary Functions

Medium of Exchange – Today, most transactions are paid through money. A producer sells their goods to a wholesale trader and receives money in return. The wholesale trader sells the goods to a retail trader and receives money. The retail trader then sells goods to customers in exchange for money. Thus, money acts as a link among all buyers, sellers, consumers, and traders in society, facilitating their transactions.
Measure of Value – The second function of money is to measure the value of all services. Just as physical objects are measured by length, width, weight, liters, or meters, the value of all goods and services is measured in money. This function of money is essential because no exchange is possible without knowing the price. Before buying anything, a customer wants to know its price, which is expressed in money. For example, something might cost 10 rupees per meter, 20 rupees per liter, or 30 rupees per kilogram. Based on this, a person decides how much quantity to purchase.

2. Secondary Functions

Standard for Deferred Payment – Nowadays, most business is based on credit or borrowing. Goods are often bought on credit, and payment is made later. All these transactions are completed through money. When lending, interest rates and installment payments are also determined in money, so the borrower remembers how much and when to repay. Compared to other commodities, the value of money remains more stable.
Store of Value – This means that a person can save a part of their income for future needs or unforeseen emergencies. They must be sure that the money saved is safe and secure and can be used at any time. Money can also be deposited in banks to earn interest. Efforts are made to keep money stable; otherwise, people would prefer to keep their savings in gold, land, or other assets, which do not tend to lose value easily.
Transfer of Value – Money functions as a medium of exchange. Because of this primary role, money is considered the best means of transferring value. For instance, if someone lives in one city and wants to settle in another, they can sell their property, land, or other assets and receive money, which can then be used to buy new property in the new city.

3. Contingent Functions

Liquidity of Property – Money gives liquidity to property, meaning that we can convert any property into money whenever we wish. Land, houses, machines can be sold to obtain money, which can then be invested to generate more profit.
Basis of Credit – Credit refers to borrowing. The business of banks and other financial institutions depends on credit. Credit is created based on the deposits in banks, which are in the form of money. These deposits help build trust in banks among customers.

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