Secondary Functions of Money: standard of deferred payment 2020
Secondary Functions of Money: The relatively less important functions of money are called secondary function. Since, this function originates from primary functions. These functions are also called derived functions. The secondary functions of money are as follows: –
Secondary Functions of Money
Standard of Deferred Payment:
Money is a unit in terms of which debts and future transactions can be settled. Thus loans are made and future contracts are settled in terms of money. Money serves as the standard of deferred payment or units in which future or deferred payments are made. This function applies to interests, rents, salaries, pensions, insurance premium etc. The lending and borrowing acts are easily expressed in money. Due to the qualities of stability in value, general acceptability and durability, money is regarded best for these transactions.
The process of credit was possible in barter system also, but was largely inconvenient and uncertain in terms of quality and quantity due to the changing nature of commodities; some of which were perishable also. The purchasing power of money falls when there is rapid rise in the price of goods and services. Money ceases to be the good store of value and men lose faith in money. Money ceases to work as a standard of deferred payment after it loses faith. As for example, most of the contracts in Germany were made in Swiss Frank or U.S. Dollar in 1923, Whereas Mark was the national currency of Germany.
Store of Value:
Money being a permanent abode of purchasing power holds command over goods and services all the times-present and future. Money is a convenient means of keeping any income which is surplus to immediate spending needs and it can be exchanged for the required goods and services at any time. Thus it acts as a store of value.
The fourth function of money is to serves as a store of value because it is easy to spend and easy to store. Money serves as store of value in the short run as well as long run. By performing the function of store of value, the money provides security to individuals to meet unpredictable contingencies and to pay debt that are in terms of money. In barter exchange system, commodities could not be stored for a longer period of time. Money has a unique nature of durability and stability in value; thus it is can be stored for a long time. This has introduced in people, a trend of making savings from the incomes for future purposes.
This function of money; store of value is necessary but not sufficient condition to term anything as money. Although, money functions as a store of value, but all things functioning as store of value cannot be termed as money. For instance: things like diamond, jewellery work as a store of value. But, these do not serve the primary functions of money, hence are not termed as money; therefore not used as money
Transfer of Value:
Money serves as the function of transfer of value or purchasing power. People transfer value by selling commodities or property to others and by buying commodities and property with others. Money has facilitated the transaction of goods in distant places.