Money: UPSC Daily Important Topic | 3 January 2022

∆Money

✓ “Anything which is widely accepted in payment of goods or in the discharge of other kind of payment obligations”.

✓ “Money can be defined as anything that is generally acceptable as a medium of exchange and at the same time act as a measure and a store of value”.

✓ Economist has simply defined money as “Money is what Money does”. That is money is anything which performs the function of money.

~The main functions of money are:

• A medium of exchange

• A unit of account

• A store of value

• Medium of exchange

– The most important function of Money is a medium of exchange used in facilitating transactions.

– Without money, all transactions would’ve to be performed by barter system, which engages direct trade of one good or service for another. In barter system, exchange can take place when there is a double coincidence of wants flanked by two transacting parties.

– Money efficiently eliminates the double coincidence of wants predicament by serving as an intermediate of exchange that is acknowledged in all transactions, regardless of whether the parties desire each others’ goods & services.

• Unit of account

– Money also functions as a unit of account. It provides a common measure of value of goods & services being swapped.

– Knowing the value of a good, in terms of money, facilitates both supplier & purchaser of the good to make pronouncements about how much of the good to purchase and how much of the good to supply.

• Store of value

– As a store of value, money is not unique. Other stores of value subsist such as art works, land, stamps etc.

– Money perhaps is not the best store of value as it deflates with inflation. Money is an easily transported store of value that is accessible in a number of expedient denominations.