MONEY AND ITS FUNCTIONS

Money has four functions: a medium of exchange or means of payment, a store of

value, a unit of account and a standard of deferred payment. When used as a
medium of exchange, money is considered to be distinguished from other assets.

Money as the medium of exchange is believed to be used in one half of almost all
exchange. Workers exchange labour for money, people buy or sell goods in
exchange for money as well.

People do not accept money to consume it directly but because it can subsequently
be used to buy things, they wish to consume. To see the advantages of a medium of
exchange, imagine a barter economy, that is, an economy having no medium of
exchange. Goods are traded directly or swapped for other goods. The seller and the
buyer each must want something the other has to offer. Trading is very expensive.
People spend a lot of time and effort finding others with whom they can make
swaps. Nowadays, there exist actually no purely barter economies, but economies
nearer to or farther from the barter type. The closer is the economy to the barter
type, the more wasteful it is.

Serving as a medium of exchange is presumed to have for centuries been an

essential function of money.

The unit of account is the unit in which prices are quoted and accounts are kept. In
Britain, for instance, prices are quoted in pounds sterling; in France, in French
francs. It is usually convenient to use the same unit to measure the medium of
exchange as well as to quote prices and keep accounts in. However, there may be
exceptions. During the rapid German inflation of 1922-23 when prices in marks
were changing very quickly, German shopkeepers found it more convenient to use
US dollars as the unit of account. Prices were quoted in dollars though payment was
made in marks. The same goes for Russia and other post-communist economies
who used the US dollar as a unit of account, keeping their national currencies as
means of actual payment. The higher is the inflation rate, the greater is the
probability of introducing a temporary unit of account alongside the existing units
for measuring medium of exchange.
Money is a store of value, for it can be used to make purchases in future. For money
to be accepted in exchange, it has to be a store of value. Unless suitable for buying
goods with tomorrow, money will not be accepted as payments for the goods
supplied today. But money is neither the only nor necessarily the best store of value.
Houses, stamp collections, and interest-bearing bank accounts all serve as stores of
value.

Finally, money serves as a standard of deferred payment or a unit of account over

time. When money is borrowed, the amount to be repaid next year is measured in
units of national currency, pounds of sterling for the United Kingdom, for example.
Although convenient, this is not an essential function of money. UK citizens can get
bank loans specifying in dollars the amount that must be repaid next year.

Thus, the key feature of money is its use as a medium of exchange. For money to be
used successfully as a means of exchange, it must be a store of value as well. And it
is usually, though not always, convenient to make money the unit of account and
standard of deferred payment.

MONEY AND ITS FUNCTIONS

The main feature of money is its acceptance as the means of payment or medium of
exchange. Nevertheless, money has other functions. It is a standard of value, a unit
of account, a store of value and a standard of deferred payment.

The Medium of Exchange

Money, the medium of exchange, is used in one-half of almost all exchange.

Workers work for money. People buy and sell goods in exchange for money. We
accept money not to consume it directly but because it can subsequently be used to
buy things we wish to consume. Money is the medium through which people
exchange goods and services.

In barter economy there is no medium of exchange. Goods are traded directly or

swapped for other goods. In a barter economy, the seller and the buyer each must
want something the other has to offer. Each person is simultaneously a seller and a
buyer. There is a double coincidence of wants.
Trading is very expensive in a barter economy. People must spend a lot of time and
effort finding others with whom they can make mutually satisfactory swaps. Since
time and effort are scarce resources, a barter economy is wasteful.

Money is generally accepted in payment for goods, services, and debts and makes
the trading process simpler and more efficient.

Other Functions of Money

Money can also serve as a standard of value. Society considers it convenient to use
a monetary unit to determine relative costs of different goods and services. In this
function money appears as the unit of account, is the unit in which prices are quoted
and accounts are kept.

To be accepted in exchange, money has to be a store of value. Money is a store of

value because it can be used to make purchases in the future.

Houses, stamp collections, and interest-bearing bank accounts all serve as stores of
value. Since money pays no interest and its real purchasing power is eroded by
inflation, there are almost certainly better ways to store value.

Finally, money serves as a standard of deferred payment or a unit pf account over

time. When you borrow, the amount to be repaid next year is measured in money
value.

Different Kinds of Money

Golden coins are the examples of commodity money, because their gold content is a
commodity.

A token money is a means of payment whose value or purchasing power as money

greatly exceeds its cost of production or value in uses other than as money.

A $10 note is worth far more as money than as a 3x6 inch piece of high-quality
paper. Similarly, the monetary value of most coins exceeds the amount you would
get by melting them down and selling off the metals they contain. By collectively
agreeing to use token money, society economizes on the scarce resources required
to produce money as a medium of exchange. Since the manufacturing costs are tiny,
why doesn't everyone make $10 notes? The essential condition for the survival of
token money is the restriction of the right to supply it, Private production is illegal.
Society enforces the use of token money by making it legal tender. The law says it
must be accepted as a means of payment. In modem economies, token money is
supplemented by IOU money.

An IOU money is a medium of exchange based on the debt of a private firm or

individual.

A bank deposit is IOU money because it is a debt of the bank. When you have a
bank deposit the bank owes you money. You can write a cheque to yourself or a
third party and the bank is obliged to pay whenever the cheque is presented. Bank
deposits are a medium of exchange because they are generally accepted as payment.

Vocabulary:
to quote – регистрировать, называть
the same goes for… – то же самое относятся к…
The... the... – чем … тем …
The more the better. – Чем больше, тем лучше.
for – 1. prep для, за, на; в течение; 2. cj (после запятой) так как, потому что
for example / for instance – например
for + noun + Infinitive – для того, чтобы что-то было сделано
medium n (зд. -dia) – средство, способ
exchange – обмен
medium of exchange – средство обмена, средство обращеня (как функция денег)
in exchange for smth – в обмен на что-л
exchange v (smth for smth) – менять, обменивать (что-л на что-л)
exchange rate – обменный курс
the exchange rate of rouble against US dollar – обменный курс рубля по отношению
к американскому доллару
means n – (употребляется с глаголом в ед. ли мн. ч.) средство, средства
store n – запас, резерв
store of value – средство сбережения; средство образования капитала; средство
«сохранения стоимости» (как функция денег)
store v – накапливать, запасать; хранить
account n – 1. расчет, подсчет; 2. счет; запись финансовых операций.
unit of account – расчетная единица
to keep an account – вести счет
defer v – откладывать, отсрочивать
deferred payment – отложенный, отсроченный платеж
distinguish v – (smth from smth) отличать, различать (одну вещь от
другой); (between things) проводить различие (между двумя вещами)
accept v – принимать
barter n – бартер (способ торговли, состоящий в обмене товарами и услугами без
использования денег)
trade v 1. (in smth with smb) торговать (чем-л с кем-л);2. (smth for smth) обменивать
(что-л на что-л)
trade n – торговля
swap v (smth for smth) менять (что-л на что-л) (употребляется преимущественно для
обозначения бартерных операций)
swap n – обмен
to make a swap – произвести обмен
expensive a – дорогой
nowadays adv – в наше время, в наши дни, теперь
actually adv – фактически, на самом деле
actual a – фактический
wasteful a – неэкономный, расточительный
waste v – расточать, попусту тратить, терять (время, средства)
convenient a – удобный
exception n – исключение
with the exception of this bank – за исключением этого банка
rapid a – быстрый, скорый
currency n – валюта
temporary a – временный
alongside prep – наряду с, вместе с
finally adv – в конце концов, в заключение
repay (repaid, repaid) v – возвращать (долг)
loan n – заем, ссуда
the means of payment – средство платежа
medium of exchange – средство обращения
a standard of value – мера стоимости
a unit of account – единица учета
a store of value – средство сбережения (сохранения стоимости)
a standard of deferred payment – средство погашения долга
subsequently – впоследствии
a barter economy – бартерная экономка
to swap (to exchange, to barter) – обменивать, менять
to hand over in exchange – передать, вручить в обмен
a double coincidence of wants – двойное совпадение потребностей
a monetary unit – денежная единица
to remind of – напоминать
to be worthless – обесцениваться
an interest-bearing bank account – счет в банке с выплатой процентов
to pay interest – приносить процентный доход
to erode – зд. фактически уменьшаться
hard currency – твердая (конвертируемая) валюта
soft currency – неконвертируемая валюта
invariably – неизменно, постоянно
commodity money – деньги-товар
token money – символические деньги (дензнаки, жетоны, и т.п.)
to melt down – расплавить
tiny costs – мизерные затраты
to supplement – дополнять
legal tender – законное платежное средство
IOU money (I Owe You – я вам должен) деньги – долговое обязательство
a bank deposit – вклад в банке