Definition of Money
According to Crowther,
"Anything that is generally acceptable as a means of exchange and which at the same time acts as a measure and store of value."
Functions of Money
Money performs five important functions :-
- Medium of exchange : Money acts as a medium of exchange as it's generally accepted. On the payment of money, purchase of goods and services can be made i.e. goods and services are exchanged for money. Money bifurcates buying and selling activities separately so it facilitates the exchange transactions.
- Measure of value : Money is a common measure of value so it is possible to determine the rate of exchange between various goods and services purchased by the people. Exchange value of commodity can be expressed in terms of money. For e.g. we can say that 10 metres of Cotton Cloth cost $220 dollars or Rs.10,000 rupees only.
- Store of value : Money acts as a store of value. Money being generally acceptable and its value being more or less stable, it is ideal for use as a store of value. Being non-perishable and also comparatively stable in value, the value of other assets can be stored in the form of money. Property can be sold and its value can be held in money and converted into other assets as and when necessary.
- Standard or Deferred payment : Money is also inevitably used as the unit in terms of which all future or deferred payments are stated. Future transactions can be carried on in terms of money. The loans, which are taken at present, can be repaid in money in the future. The value of the future payments is regulated by money.
- Transfer of value : Value of any asset can be transferred from one person to another or to any institution or to any place by transferring money. The transfer of money can take place irrespective of places, time and circumstances. Transfer of purchasing power, which is necessary in commerce and other transactions, has become available because of money.
why cheques and credit cards are not counted as money?
Because later on you will have to pay real money for what you bought with your credit card.<><>Right. They are a PROMISE to pay. Not payment.In defining money, we include, along with currency, deposits at banks and other depository institutions. But we don't count the checks that people write as money.Why are deposits money and checks not?To see why deposits are money but checks are not,think about what happens when Colleen buys someroller-blades for $100 from Rocky’s Rollers. When Colleen goes to Rocky’s shop, she has $500 in her deposit account at the Laser Bank. Rocky has $1,000in his deposit account—at the same bank, as it happens.The total deposits of these two people are$1,500. Colleen writes a check for $100. Rocky takes the check to the bank right away and deposits it.Rocky’s bank balance rises from $1,000 to $1,100,and Colleen’s balance falls from $500 to $400. The total deposits of Colleen and Rocky are still the sambas before: $1,500. Rocky now has $100 more than before, and Colleen has $100 less.This transaction has transferred money from Colleen to Rocky, but the check itself was never money. There wasn’t an extra $100 of money while the check was in circulation. The check instructs the bank to transfer money from Colleen to Rocky.If Colleen and Rocky use different banks, there is an extra step. Rocky’s bank credits $100 to Rocky’s account and then takes the check to a check-clearing center. The check is then sent to Colleen’s bank,which pays Rocky’s bank $100 and then debits Colleen's account $100. This process can take a few days, but the principles are the same as when two people use the same bank.
From- Macroeconomics,Michael Parkin, 10th edition
