Money is the hob and the economy: in any economy, money performs a number of vital functions and is an essential part of economy.

It is used as a medium of exchange: in a modern economy, exchange usually takes places through the medium of money. It is accepted in payment and used to pay for goods and services. Money gives the owners freedom to spend it as and when they like. It confers liquidity and gives the consumer freedom of choice. A consumer can exchange money for different things thereby helping him to command a variety of goods and services. Buying and selling is facilitated by using money.

This function of money, which is largely based on its acceptability, has helped to over come the problem of double coincidence of wants which characterized the barter economy. Instead of exchanging goods for goods, or services for services etc. they are exchanged for money. This helps to save time and effort.

Money services as a medium of exchange as we have seen earlier barter could not solve the problems of exchange. Money was therefore developed to solve these problems, buy serving as a proper medium through which exchange could be carried out.


It serves as a unit of account: Records of payments and receipts can be conveniently kept in monetary units. This is because the value of goods and services which are bought and sold is measured in terms of money or prices at which they can be bought or sold.  Records of business transaction can easily be kept by assigning prices to goods and service and recording their value. Business accounts, costing, because of payments accounts etc. are computed in monetary calculations units. Calculations are easier since they are in the same monetary units.

Money serves as an important standard unit of account in barter economy, there was no set quantity of one commodity that could be exchange for another. The exchange depended on terms of exchange concluded by the two people involved in the exchange in terms of the quantity of one commodity that would be exchanged for another. Because of this, there was wide room for feasting. With the development of money, it serves as a yard-stick through which other valuable things could be compared. All terms of trade can now be concluded through the intermediary of money.

It serves as a measure of value: Since the value of goods and services can be expressed as prices, it becomes possible to use money as a yard stick for measuring and comparing the worth of goods and services as well as occupation. For example, if there are two pairs of chose, one costing N15.00 and the other N25.00, the one costing N95.00 will be regarded as having a higher value or quantity. Again, occupation and N10.00 in another, other things remaining equal, he will choose the occupation with a wages rate of N15.00 per week.

The function of money as a measure of value and a unit of account have helped to overcome the problem of a rate of exchange associated with the barter economy. The value of goods and service to be exchanged can be measured in monetary terms. The price which a goods or services are worth is paid by one who wants to consumer it.

Money serves as a means of measuring value. Barter was complex means of exchange. In barter economy there was no standard yard stick for measuring value. It is new easier to know the value of any commodity when it is subjected to money valuation.

Money is used as a store of value: Money is the easiest and most convenient means of storing surplus goods or wealth for further use. People do not consume all their wealth or output and so some have to be put aside for future use. Money is able to perform this function effectively because it is fairly durable and cheap to maintain. It will serve this function effectively, provided inflation minimal. Modern money has helped to solve the problem of storability which occurred during the barter system, and when the old forms of money were used. During those period same commodities took up much space and those ones which were not durable got spoiled after some time.

Money acts as a standard for deferred payments: The use of money has made it possible to goods and service to be bought an credit and payment made at a later date. The settlement of debits at a later date is referred to as deterred payment. This function is largely important in modern times in which many business transactions are done on credit. Future payments are specified in sums of money.

The function of money has solved the problem associated with lending and borrowing in the barter economy. This is because money is homogeneous and fairly durable. Credit transactions the not seriously handicapped as in the days of trade by barter. The same amount of money owed can be paid back, instead of, for instance, a smaller or larger piece of yam being returned to pay for the one borrowed. Those who render services could collect money for their services and sue the money to make payments later.

Money is a dynamic instrument which acts on the economy, thereby speeding up economic development. This is due to the fact that:
1,   The use of money makes division of labour and speculation possible when people specialize, there is increased productivity and exchange is facilitated by using money. 
2.   The use of money make it possible to attach prices to commodities it therefore determines what to produce and the quantity to produce.
3.    By facilitating credit transactions businessmen could easily   avail themselves of loan opportunities. They make use of surplus money savings which are mobilized to increase             investment.

Money is used for one way payments: It is used to may taxes in modern times, and may also be given as gifts. More problem would arise of people were to pay tax in the form of goods and services.

Homogeneous or standardized units: Each unit of the commodity used as money must be identical with others. The material for each unit of money must be of the same size shape, colour, and quality for example, a ten kobo piece of metal must be identical with any other ten kobo piece, in all respects.

Some of the old forms of money were not homogeneous. For example, cows are not identical. Some may be small than others. Some may be brown which others are black etc. Two elephant tusks can hardly be identical is all respects.

Commodities used in the olden days as money (such as elephant husks) may not be generally acceptable since their use may not have legal backing. In other words, their were not legal tender, and so people might refuse to accept them for one reason or another.     

Money serves as a means through which values of commodities are stored: Since money commands variety, people can now store their wealth in money form with the result that any time they want their wealth back into material form, they can easily use the money in buying the materials. For example if Mr. Nwaogu has a Volvo car, which he does not make use of at the present, he can sell it and store its value in money form whenever he wants it again, he can use the money to buy the Volvo car again.

It is unfortunate that nowadays the value of money changes from time to time. The value of money fluctuates according to the economics condition of the time. When there is economics boom and the resultant inflation, the value of money falls. On the other hand, during the periods of money scarcity, the value of money rises.

Because of these changes in the value of the money, it is unlikely that money performs the function of storing value effectively.

Money serves as a means of postponing the payment of debts until future date. This is made possible by the facts that the value of money is supposed to be relatively stable. The payment for goods and services bought today on credit could be made at a future date. But because the value of money changes more frequently nowadays, N100 borrowed today may worth more than a N100 tomorrow it is because of this, among other things that interest is usually charged on the money obtained as loan. 
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