Money is used for buying and selling of goods. Different countries have their currencies which they use to trade. However, when it comes to international trade, the US dollars are primarily used. Before money was invented people used to exchange one product for another. This type of business is referred to as barter trade. Let us now look at the different function of money.
Medium of exchange
This is no doubt the primary role of money. To understand this better, we have to go to decades ago when barter trade was the only way in which you could get the goods that you needed, but you didn’t have. This is how various communities co-existed in the past.
However, it was difficult to quantify some products for the others. Money removed this difficulty as it is currently used as the medium of exchange. When you want to buy goods from an individual, all you need is money. When you pay the required amount, you will get the goods or the service that you desire.
Measure of value
Another function of money is that it acts as a measure of value. Under some of the traditional modes of trading, it was difficult to tell the value of various goods. For example, communities that were farmers traded agricultural goods with communities that were fishermen.
It was difficult in equating the number of fish that would be equivalent to ten liters of milk. Money removed this difficulty. When it comes to the measuring of the value of the goods and services, money is typically used as the yardstick. You can, therefore, quickly tell the value of a given product or service by looking at the monetary value that has been attached to it.
Store of value
Another essential function of money is that it is the store of value. It is one of the most liquid assets that can be stored for future purposes. This is why we have what is referred to as the saving accounts and the safes.
You can decide to save part of your money in the bank or purchase a home safe and keep it there. You will be able to access your stored wealth in future because by saving money, its value is not lost.
Basics of credit
Money can also help you to secure loans. Different financial institutions may require that you save with them before they offer you loans.
When you want to open a business for example or build a house, you may not have all the money that is required for the same. You can use what you have in the financial institution to secure the amount of money that you need. The video below highlights some of the functions of money.
