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IGCSE Economics Functions of money

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IGCSE economics functions of money

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Functions of money — quick explainer

Medium of exchange

Widely accepted for buying and selling goods and services.
Removes the need for barter and the “double coincidence of wants”.
Example: You pay ?100 for a bus pass instead of swapping items.

Store of value

Holds purchasing power for use in the future.
Works best when money is durable and inflation is low.
Note: High inflation erodes money’s ability to store value.

Unit of account

Common measure for quoting prices and recording accounts.
Makes value comparisons easy (?50 vs ?120).
Requires: a standard, divisible and recognisable currency.

Standard of deferred payments

Allows contracts and debts to be settled over time in money terms.
Used for loans, instalments, and credit purchases.
Note: Unexpected inflation/deflation shifts value between borrowers and lenders.

How it all connects

The four functions support market exchange, pricing and saving.
If one function fails (e.g., rapid inflation), money becomes less effective overall.

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