THE NATURE AND FUNCTIONS OF MONEY

THE NATURE AND FUNCTIONS OF MONEY

1. WHAT IS MONEY

Money is one of the wonderful inventions of man. The pity is that it has no precise definition The economists have given different definitions of it and they have so far not agreed on the specific meaning of money i.e. how to define and how to measure money. Broadly, the term 'money' has been described in two different ways. Functional view and (b) General acceptability view:

(i)

Functional view. According to Walker "Money is what money does". This is a

purely functional definition of money. Traditionally, money serves four functions (a) a medium of exchange (b) a unit of account (c) a store of value and (d) a standard of deferred payments. So following this definition, anything which may be metallic coins, paper currency, cheques, bills of exchange etc. which serves these four functions could be considered money.

General acceptability view. The modern economists are of the view that a suitable definition of money should point out not only the four major functions of money but also possess the basic feature of 'General acceptability'. Money should be a commodity which is generally acceptable by the society in payment for goods and services and in the repayments of debts. According to Crowther, "Money can be defined as anything that is generally acceptable as a means of exchange and that at the same time acts as a measure and store of value". In the words of "D. H. Robertson", anything which is widely accepted in payment for goods or in discharge of other kinds of business obligations is called money".

Money is different from wealth and income. Wealth is the total resources owned by the individual or business. It includes money and other assets such as bonds, car, land, house etc. Income is a flow of earnings per unit of time i.e., day, week, month etc,

NEAR MONEY

The money and assets whicn can be easily and quickly transferred into money without loss in value are called near monies. Near money cannot be directly used for making payments. There are first to be converted into proper money as and when needed for spending. Near money or non-monetary liquid assets chiefly consist of time deposit, treasury bills, government securities, saving bonds,

As near monies can be easily converted into currency or demand deposits, it has important bearing on the economic health of the economy. The increase or decrease in the holding of near money affects the rate of communities saving and spending. The greater the amount of wealth in the form of near monies, the greater is the tendency of the community to consume out of this income. Secondly, as the near monies can be easily converted into cash, it directly affects the money supply.

Components of Money Supply

In Pakistan, the main components of money supply are:

(1) M1 = Currency in circulation +• Demand deposits of saving banks + Other deposits with State Bank of Pakistan.

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