- The function of money as a medium of exchange.
This is the most familiar function is to acquire goods and services. Money can purchase any product because they are a universal medium of exchange.
Money circulation eliminates the disadvantages of a barter exchange and this is the most important function of money.
- The function of money as universal measure of value.
In the exchange of one commodity for another, the goods must be similar in value. With the development of the exchange, some of the products become the most common equivalents of other commodities. This product became the precious metals because of their natural physical attributes and labor costs of their extraction and production.
In times of inflation money ceases to perform the function of measure of value, but continue to be a medium of exchange.
In hyperinflationary economies, the measure of value served as a strong foreign currency (usually dollar). In these circumstances, the value of goods priced in dollars remained unchanged and it focused merchants and businessmen.
- The function of money as means of accumulation.
Money is also a means of accumulation, because after the sale of something, they give the owner the opportunity to purchase sth. in the future. But, despite the greater liquidity of money, the accumulation of them has its drawbacks. Money alone does not bring the owner income. Income can only bring securities or assets purchased with the money (such as stocks, bonds, real estate).
For saving money, you have to keep them on Deposit accounts in banks to earn interest.
In addition, in times of rapid inflation, money can't act as a means of accumulation, as depreciate quickly. During this period, it is better to invest in assets that are not liquid, but not so worthless as money.
During hyperinflation, the money is better exchanged for a more stable foreign currency.
These are the main functions of money.