Money Function – Every day, people must use money in their lives. Even so, not many know about the meaning of money itself.
In economics, money is defined as something that is generally available and accepted as a means of payment in the transaction process. Not only that, money is also often associated with the parameters of a person's wealth.
In other words, money has become an object that is generally used by society to measure value, exchange, and make official payments.
Money also consists of various types. Based on the material of manufacture, money is divided into two types, namely coins and paper money.
As the name implies, coins are made of metal – usually gold or silver because their values tend to be stable. As with coins, banknotes are made of paper or with certain images and stamps.
Apart from having general use as a legal tender, is there any other function of money? Come on. see the following discussion!
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Money Function
Money Original Function
The original function of money means that money has several main functions to carry out. For a more complete explanation, let's see the following discussion!
1. As an Exchange Tool
Money can make the exchange process easier. It is different with the people in the past who still apply the barter system. Usually, they exchange livestock for a sack of rice.
However, it is rarely found nowadays. Because, people are now implementing a new exchange system with a medium of exchange called money.
The barter system has been replaced by the presence of money as an effective and efficient medium of exchange.
2. As a Unit of Account
Apart from being a medium of exchange, money can also be used to show the value or nominal value of an item or service.
In other words, money can be a price indicator. So, we can more easily find out the value or price of goods and services that are traded.
3. As a Store of Value
Next, money can also be used as a means to store value. For example, you are currently receiving some money for your efforts.
Then, you can save the money for future purposes. That way, you don't have to use money for a short period of time.
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Money Derivation Function
In addition to the three things above, money also has another function called a derivative function. Here is the explanation.
1. As a Driver of Economic Activity
In economic activities, money should act as a medium of exchange for goods. So, in other words, money becomes a supporter or driver for the sustainability of economic activity.
Thus, money makes a major contribution to the economic cycle in society. Because, money supports the purchasing power of each individual.
2. As a Wealth Transfer Tool
Money can be used as a means of transferring wealth. For example, a person wants to move to another place. As a result, he only needed to sell the land and buildings. Then, he will get his treasure in the form of money.
Furthermore, he can buy back the house or land using the money from the sale.
So, indirectly, money can also move wealth. One way is to turn money into an asset that is tailored to the wishes of the holder of the money.
3. As a Legal Payment Instrument
Simply put, money can be used to simplify the transaction process. Imagine if you wanted an item to sell, what would you use to buy it?
Since money was introduced in Indonesia, even the world, its role has become very important. Because money is designated as a legal tender and can facilitate the process of transactions for goods and services.
4. As a Hoarding Tool for Wealth
Besides being used for transactions, money can be used as a means of hoarding wealth.
Generally, people will not spend all their money. Instead, they set aside some of the money earned for future needs.
In other words, we can also call it "hoarding". Because, money seems to be hoarded to reach the desired nominal.
Also read: 7 Ways to Overcome Laziness in Recording Financial Expenditures and Income!
Well, that's the original function and derivative of money. So, you don't just use it everyday. But, now you also know about the meaning, function, and type of money itself.
You can also increase your financial literacy while practicing how to manage finances through the Whiz financial application., one of the family finance apps. Enjoy the features that will make it easier for you!
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