(A) Secondary Functions of Money – Following three functions are secondary functions of money :
(i) Standard of deferred payment – Money as a standard of deferred payment means that money acts as a ‘standard’ for payments, which are to be made in future. Every day, millions of transactions take place in which payments are not made immediately. Money encourages such transactions and helps in capital formation and economic development of the economy.
(ii) Store of Value – Money as a store of value means that money can be used to transfer purchasing power from present to future, and thus, money is a way to store wealth. Although wealth can be stored in other forms also, but money is the most economical and convenient way. It provides security to individuals to meet contingencies, unpredictable emergencies and to pay future debts. Under barter system, it was difficult to use goods as a store of wealth due to the perishable nature of some goods and high cost of storage.
(iii) Transfer of Value – A value transfer system refers to any system, mechanism, or network of people, that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, whether or not in the same form. With the help of money, a person can easily transfer his/ her purchasing power to another person. In this way, money also functions in the form of standard of transfer of purchasing power.
(B) Contingent Functions of Money – Following are the contingent functions of money :
(i) Distribution of Social income – Money helps in equitable and judicial distribution of social income among different factors of production. Total output of the country is jointly produced by these factors. So,, the output should be distributed among them. Money helps in distribution of the industrial income in the form of rent, wage, interest and profit, which are expressed in money terms.
(ii) Basis of credit – Credit creation by commercial banks was not possible until money was introduced. Money as a store of value has encouraged savings by people in the form of demand deposits in banks. Such demand deposits are used by commercial banks to create credit.
(iii) Liquidity of Property – Money provides liquidation to wealth and capital. Due to its liquidation, it can be used immediately. This helps in increasing production.
