Characteristics And Functions Of Money


Money is an item which is generally acceptable as a means of payment.

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Characteristics of Money:

General Acceptability:

All people should readily accept it.


Money materials can be easily divisible into small parts / units of different value, without losing its value.


It can be easily transported from one point to another and can be carried around easily.


Money can be made of that material that will last for some time e.g. metal /paper, not from perishable goods.


Every note or coin of the same value should be exactly the same.


People can easily recognize that the item is money.


Material chosen for it should be relatively scarce.


Functions Of Money:

Medium of Exchange:

Goods and services can be traded with money.

Products are exchanged for money that money can be then used to buy other product.

Store of Value:

It can be saved. Thus, it allows people to save in order to make purchases at a later date.

Unit of Account:

It can also be used to place a value on an item.

ThusΒ the value of goods and services can be measured with money.

Standard for Deferred Payment:

Allows people to lend and borrow.

Someone who wants to buy something now can get it buy borrowing money from some one who does not want to use it now. That amount can be repaid in future.

It helps people to pay in installments.

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