Top 3 functions of money you should remember
We all use money. We work hard for it. We think about it. We want it. But do we really know anything about it in particular? Many of us wonder how money grows. Right now, money is the only tool that can bring us the things that we want. The task of answering all those specific questions regarding the role of money and its growth in modern realities belongs to the specialists. However, it would be useful to know the three main functions of money!
Money in economics
We can define its role based on its functions and services. Any kind of currency may be used as a tool for exchange, store of valuable features and unit of account. Let’s talk about all these three functions in details.
Tool of exchange
As a tool of exchange, money provides facilitation of transactions. If there wasn't any currency in the world, we would implement any transaction through trade by barter. It means that every product or service would be involved in a direct exchange on a "one for another" basis.
The difficulty of this approach to transactions is that to get a specific good or service, one party of a bargain has to possess a commodity or be able to provide a service of the same value to a supplier, which is required by him.
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If we had a barter system nowadays, it would be quite problematic to exchange anything, as there is little chance of double coincidence of needs between two parties in the barter. However, this form of transaction was quite popular ages ago.
How did humanity solve this problem? Yes, you know it. We created money. It erases the question of double coincidence of needs between two parties. With money, it does not matter anymore whether the price of our commodities and services is equal to ones that the supplier possesses.
Additionally, we don’t have to bother about what kind of products he wants exactly. Now he can buy anything he wants with the money!
Store of value
The second money function from the economic point of view is its ability to be a store of value. It is a feature that makes it possible to use money as a tool of exchange. For example, if we could not store it for some period, and be sure that its value is preserved for bilateral transactions, we would have a barter system again. Why? Because economic system would not adopt the currency that cannot hold.
In this quality, money is not the only item that remains valuable as time goes by. There are many other kinds of stores of value such as real estate, land, works of art and even some rare items like comics or baseball cards in economic system nowadays. Many researchers think that money isn't the most appropriate store of value at all, as it becomes demonetized with inflation.
Nevertheless, nobody can argue with the fact that it's impossible to find any liquid item like money in the entire world. Almost everyone uses it as a means of exchange. Do you see now? Everything is connected in economics! Additionally, it may be considered as the most accessible item that can be delivered, and that is available in a variety of denominations.
Unit of account
Finally, the third function of money lies in it being a unit of account. This function provides a common measuring tool for all the goods and services that are exchanged in transactions. If two operating parties of the bargain know the exact price or value of the product and service, they will instantly be able to decide how many items/services they want to supply or to purchase.
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Source: Naija.ng