Secondary Functions of Money

UnitofaccountIn addition to its two primary functions of serving as a medium of exchange and as a common measure of value, money performs the secondary, derivative or subsidiary functions of serving as a standard of deferred payments, a store of value and transfer of value. Standard of deferred payments: Money comes into general use as a medium of payments and as a unit of account not only for immediate transactions; it also serves as a standard of deferred payments when obligations to make future payments are stated in terms of it.

The obligations have their origin in two general types of transactions. The first is that in which one contracting party agrees to deliver a fixed amount of goods, services or securities at some future time in exchange for an agreed upon sum of money to be paid in the future. The second type of transactions giving rise to the use of money as a standard of deferred payments includes credit or debit transactions, in which the creditor parts with things of value at one time in return for which the debtor promises to repay money at some future date.

Regardless of what is bought on account of what is borrowed, these debts are almost invariably stated in terms of money. In the modern economic society people owe each other the great aggregate of debts. This has increased the importance of money as a standard of deferred payments. It may be mentioned; however, that just as money is an imperfect measure of value, it is also imperfect as a standard of deferred payments.

Money can be a satisfactory standard of deferred payments only to the extent that it maintains stability in its value through time. Store of value: Money is generalized purchasing power. It is accepted at any time for any good or service and it remains constant in terms of itself. Due to its being generally acceptable and valuable, money embodies value in its most general form. The holder of money may, either spend it or hold it for future.

When money itself is retained or stored for any desired period of time, it serves as a store of value. The store of value function of money, therefore, implies the shifting of purchasing power from the present to the future. A substantial proportion of money reported to be in circulation at any time is actually being held idle as a store of value. It may be held in this form for a short period or it may be held as a permanent abode of purchasing power. Reference link: http://classof1. com/homework-help/accounting-homework-help

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