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Functions of money refers to the different uses that money can be used for within society. These range a medium for exchange, a unit of account, or as a store of value. This presentation aims to gather sources that provide a more in-depth look into these different functions of money.

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This article summarizes the three functions of money; Medium of Exchange, Store of Value, and Unit of Account. This article was picked to give a starting summary about the functions of money, and help show how they are all related to each other.

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Money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange, as a store of value, and as a unit of account.

Medium of exchange. Money's most important function is as a medium of exchange to facilitate transactions. Without money, all transactions would have to be conducted by barter, which involves direct exchange of one good or service for another. The difficulty with a barter system is that in order to obtain a particular good or service from a supplier, one has to possess a good or service of equal value, which the supplier also desires. In other words, in a barter system, exchange can take place only if there is a double coincidence of wants between two transacting parties. The likelihood of a double coincidence of wants, however, is small and makes the exchange of goods and services rather difficult. Money effectively eliminates the double coincidence of wants problem by serving as a medium of exchange that is accepted in all transactions, by all parties, regardless of whether they desire each others' goods and services.

Store of value. In order to be a medium of exchange, money must hold its value over time; that is, it must be a store of value. If money could not be stored for some period of time and still remain valuable in exchange, it would not solve the double coincidence of wants problem and therefore would not be adopted as a medium of exchange. As a store of value, money is not unique; many other stores of value exist, such as land, works of art, and even baseball cards and stamps. Money may not even be the best store of value because it depreciates with inflation. However, money is more liquid than most other stores of value because as a medium of exchange, it is readily accepted everywhere. Furthermore, money is an easily transported store of value that is available in a number of convenient denominations.

Unit of account. Money also functions as a unit of account, providing a common measure of the value of goods and services being exchanged. Knowing the value or price of a good, in terms of money, enables both the supplier and the purchaser of the good to make decisions about how much of the good to supply and how much of the good to purchase.

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Money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange, as a store of value, and as a unit of account. Medium of exchange. Money's most important function is as a medium of exchange to facilitate transactions.

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This article focuses on money as a Medium of Exchange, as well as other currencies. This article was picked to provide more in-depth information on what a medium of exchange is, what function it serves in the economy, and how it works.

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What is a 'Medium Of Exchange'?

A medium of exchange is an intermediary instrument used to facilitate the sale, purchase or trade of goods between parties. For an instrument to function as a medium of exchange, it must represent a standard of value accepted by all parties. In modern economies, the medium of exchange is currency.

BREAKING DOWN 'Medium Of Exchange'

Using a medium of exchange allows for greater efficiency in an economy and creates more trade. In a traditional barter system, trade between two parties could only occur if one party had a commodity that another party valued and vice versa. However, the chances of this occurring at the same time are minimal. But with a medium of exchange such as gold, if one party had a cow and needed a lawn mower, the cow owner could sell the cow for gold coins and use the coins to buy a lawn mower.

Money as a Medium of Exchange

Money enables anyone who has it to participate equally in a market. When consumers use money to purchase an item or service, they are making a bid in response to an asking price. This creates order and predictability in the marketplace. Producers know what to produce and how much to charge, and consumers can plan their budgets around predictable pricing.

When money, as represented by a currency, is no longer viable as a medium of exchange, or its monetary units can no longer be accurately valued, there is no predictability, no ability to plan and no way to gauge supply and demand. In short, the markets become chaotic. Prices are bid up for fear of scarcity and the unknown, and supply diminishes because of hoarding behavior and the inability of producers to replace supply quickly enough.

Alternative Currencies as a Medium of Exchange

Alternative currencies have been used throughout time to spur commerce or buttress a national currency in times of economic duress. In the early 20th century, companies had to issue company scrip and other forms of emergency currency to pay their workers because massive bank failures caused widespread cash shortages. Workers could redeem the scrip for food and services or held for future redemption in U.S. dollars when they became available.

Local currencies have sprung up across the United States with the primary purpose of fostering economic growth and sustainability within a region. The best-known case of a successful local currency occurred in the Berkshires region of Massachusetts. BerkShares were first issued in 2006 and hundreds of businesses​​​​​​​ across all communities now accept them. The value of BerkShares is pegged to the value of the dollar but issued at a discount.

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A medium of exchange is an intermediary instrument used to facilitate the sale, purchase or trade of goods between parties. For an instrument to function as a medium of exchange, it must represent a standard of value accepted by all parties. In modern economies, the medium of exchange is currency.

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This article focuses on defining Store of Value in terms of money. It talks about how a fiat currency can act as a store of value, whether it dollars or bitcoins.

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Community Submission - Author: Anonymous

The term store of value is used to describe the property of an asset that is able to avoid depreciation over a long period of time. So to be considered a store of value, an asset should have its value either stable or increase over time - but never decreasing.

A good store of value will enable its owner to sell or exchange it on a future date for a similar or higher value than it was initially bought. Usually, this value is related to the asset's market price or purchasing power (monetary value). But, in some cases, it may also be related to the asset's liquidity (i.e., how easy it is to buy and sell it).

Most fiat currencies have a long story of declining purchasing power caused by inflation (mostly due to a rapid increase in the circulating supply of that currency). But despite the effects of inflation, money is considered by many economists as a primary example of a store of value. The reason for that is possibly due to its purchasing power, which changes at a very slow pace. Also, money is likely the most liquid financial instrument we currently have. Still, stating that money is a good store of value is quite controversial. Largely because inflation and hyperinflation are continuously causing depreciation.

Gold, silver, and other precious metals are also considered good as a store of value, mainly due to their scarcity (limited supply). Also due to their ability to be stored for very long periods, without getting physically deteriorated.

Bitcoin is also considered by some as a good store of value and is quite often described as a "digital gold." Bitcoin is scarce and indestructible. It's a digital form of money that can't be copied or spent twice (double spending). These are some of the main reasons why Bitcoin tends to get more valuable over time. But because of its high volatility and unstable market price, some argue that Bitcoin is not a store of value by definition.

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Store of Value - Definition | Binance Academy

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Community Submission - Author: Anonymous The term store of value is used to describe the property of an asset that is able to avoid depreciation over a long period of time. So to be considered a store of value, an asset should have its value either stable or increase over time - but never decreasing.

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This article focuses on the definition of a Unit of Account, which is the function of money that allows it to assign a value to a property, good, or service. A property of a unit of account is that it allows for mathematical operations to be performed on the value of items. This article was chosen to provide further information about what a unit of account is and how it applies to everyday life.

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Community Submission - Author: Vitor Mesk

Essentially, a unit of account is a measurement for value. It may be related to fiat currency, cryptocurrencies, or any other instrument that allows us to compare the value of things.

In economics, the term is used to describe one of the major functionalities of money, which is related to its ability to measure the value of a particular property, good, or service. This is what allows us to evaluate a wide range of distinct products and compare then in monetary values, based on a specific currency, such as the US dollar, the British Pound, or the Euro.

So in the same way that we use centimeters (cm) to measure distance or length, we use a unit of account to gauge the monetary value of pretty much anything. Such a property of money enables us to compare, for instance, the value of a car with the value of a house. Or to compare the price of apples and oranges - even though they are quite different. In other words, money is used as a unit of account because it evaluates almost everything we produce and consume.

Also, this property is what grants money the ability to be lent and borrowed, and also what enables us to perform mathematical operations - for instance, when calculating profits, losses, and income. In other terms, a unit of account is what gives meaning and numerical values to the things we produce, trade, and consume.

But the value of money in real life is quite unstable due to inflation, deflation, and other economic phenomena. Due to that, money is not always considered a good unit of account as its ability to measure the value of things is not always the same. To understand this problem, imagine if the unit of a centimeter (cm) wasn't able to remain constant over time. Then the centimeter as a unit would become less and less useful to measure distance or length.

In contrast to the traditional definition in economics, the term unit of account in the context of financial accounting refers to the description of a particular asset or liability that is reported in financial statements. Sometimes these are also referred to as a unit of measure, which is related to the monetary unit that is being used (e.g., the US dollar). So in this case, a unit of account is simply the money (currency) used for accounting.

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Unit of Account - Definition | Binance Academy

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Community Submission - Author: Vitor Mesk Essentially, a unit of account is a measurement for value. It may be related to fiat currency, cryptocurrencies, or any other instrument that allows us to compare the value of things.

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http://www.yourarticlelibrary.com/economics/money/primary-and-secondary-functions-of-money/30307

This picture organizes and identifies the main functions of money and orders them in a hierarchy.

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Video #4 - Bitcoin as Store of Value and Unit of Account

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Video #4 - Bitcoin as Store of Value and Unit of Account

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This video provides examples and details about how Bitcoin can function as a Store of Value. This video was chosen to highlight that dollars and government issued currencies aren't the only forms of money that can perform the functions of money.

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Bitcoin is Store of Value and Divisible Currency (Here is Why)

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Picture #2 - Dollars and Bitcoin, Store of Value

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Picture #2 - Dollars and Bitcoin, Store of Value

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https://finance.yahoo.com/news/bitcoin-track-replace-gold-dominant-233758881.html

This is a picture of a dollar and a bitcoin.
This picture was chosen because both items can be used as a store of value.

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Video #2 - Functions of Money (Medium of Exchange)

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Video #2 - Functions of Money (Medium of Exchange)

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This video mentions all the functions of money but provides really good examples and explanations for Medium of Exchange in particular.

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Functions of money | Financial sector | AP Macroeconomics | Khan Academy

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This video talks about how money functions as a Store of value and presents it in a flow chart which is easy to understand. It also mentions that while money can act as a store of value, money itself has no intrinsic value.

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Video #1 - Functions of Money (Store of Value)

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Video #1 - Functions of Money (Store of Value)

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This video quickly and simply summarizes the three main functions of money and shows an example in the form of the Clifford Dollars he uses for his class.

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I learned a lot about how different forms of money can act as a store of value, including bitcoins and dollars. By having bitcoins with a perceived value that you can save to use whenever you want, they can act as a store of value.

Functions of money are incredibly important for modern society in order to facilitate easy trade of goods and services between different people that doesn't use the barter system. Money acts as a convenient medium of exchange, a unit of account for defining calculatable values, and a store of value, all of which allow for a modern economy.

The most important thing that I would inform a family member about would be that while money does act as a store of value, but over time inflation will cause the money to lose it's value, so having another method to store value over time would be prudent as a safety measure.