Thursday, 21 July 2011

Functions of money

Functions of money
Money performs the following three functions:

1.    Unstable medium of exchange

2.    Unstable store of value

3.    Unstable unit of account

1. Unstable medium of exchange

Money has the basic function that it is an unstable medium of exchange of equivalent real values at the moment of exchange. It overcomes the inconveniences of a barter economy where there must be a double coincidence of wants before a trade can take place. For a trade to take place in a barter economy one person must want exactly what the other person has to offer, at the exact time and place where it is offered.

In a monetary economy the real value of goods and services are measured in terms of unstable money, the unstable monetary medium of exchange, which is generally accepted to buy any other good or service. Without this function or attribute the invention cannot be money.

 We use payment with unstable money instead of barter to exchange real values in our economies in the transactions we enter into when we buy and sell goods, services, ideas, rights and any kind of property whether physical, virtual or intellectual. Unstable money is the lifeblood of an economy even though it is continuously changing in real value. Without unstable money the creation and exchange of real value in an economy would be severely restricted, as it would become a barter economy.

Nicolaas Smith

Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.

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