Money as it appears today comes in various forms and fulfills different functions in order to facilitate our daily economic transactions. Money can be defined by the functions it performs.
It fulfills three essential functions, it is at the same time a unit of account, a medium of exchange and a store of value.
.Medium of exchange:
In this function money appears as an intermediate good which makes it possible to separate purchase and sale operations which are confused within the framework of a barter system. It is an obligatory intermediary in exchanges, all goods are exchanged for money which, in turn, is exchanged for goods. In fact, when exchanges developed, barter became impossible and any good served as an intermediary. The products were then exchanged for this particular good, called currency of exchange. Money is therefore a particular good recognized and accepted by all, intended to facilitate trade.
.Unit of account:
Money is considered as “a common encrypted language” which makes it possible to compare the value of heterogeneous goods. As a result, it serves as a unit of measurement or else a currency which allows the value of different goods to be expressed in a single unit. Money thus determines a general scale of prices between all goods. Contrary to barter, which only made it possible to determine the value of a commodity in relation to that with which it had been exchanged, money constitutes a standard of measurement of values, we reduce the multiple valuations of each good in terms of all the others, in relation only to the unit of account.
.Store of value:
Money makes it possible to build up a purchasing power reserve from the moment when revenue and expenditure operations are not synchronized. As soon as money is a medium of exchange, it is possible to keep it. Money allows purchases to be spread over time, it represents a link between the present and the future. It is an instrument of savings. It should be noted that certain goods can constitute a reserve of value more secure than money. Nevertheless, money has the advantage of being the most liquid, it does not need to be transformed. It is used immediately in payments, but unlike other assets, the nominal return of money is zero, it is is its quality of being liquid, without transaction cost. which causes economic agents to hold it.