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Functions of Money in India

Introduction​

Money plays a crucial role in any economy, including India. It serves as a medium of exchange, unit of account, store of value, and standard of deferred payment. In this article, we'll explore these functions of money specifically within the Indian context, providing real-world examples to illustrate each concept.

Medium of Exchange​

Money acts as a medium of exchange, facilitating transactions between buyers and sellers. India, this function is evident in various aspects of daily life:

  • Digital Payments: The rise of digital payment systems like UPI (Unified Payment Interface) and Paytm has revolutionized the way Indians conduct transactions. These platforms allow users to send and receive money instantly, reducing the need for physical cash.

  • E-commerce Boom: Online marketplaces like Flipkart and Amazon have become integral to India's retail landscape. These platforms rely heavily on digital payments, demonstrating how money functions as a medium of exchange in modern India.

Unit of Account​

As a unit of account, money enables price determination and facilitates economic calculation. India, this function is reflected in:

  • Inflation Rates: The Reserve Bank of India (RBI) uses inflation rates to determine monetary policy. For instance, during the COVID-19 pandemic, the RBI introduced policies to combat deflationary pressures, showcasing how money serves as a unit of account in managing economic stability.

  • Stock Market: The Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) operate in terms of rupees per share, demonstrating how money acts as a common denominator for valuation in the stock market.

Store of Value​

Money's function as a store of value ensures that purchasing power is maintained over time. India, this is exemplified by:

  • Savings Accounts: Banks offer savings accounts with interest rates, encouraging citizens to save money. This practice helps maintain purchasing power over time, serving as a store of value.

  • Gold Reserves: Historically, gold has been a popular store of value in India. Although its popularity has waned due to rising costs, it still maintains cultural significance and is sometimes used as a hedge against inflation.

Standard of Deferred Payment​

Finally, money serves as a standard of deferred payment, enabling credit transactions. India, this function is evident in:

  • Credit Cards: Major banks offer credit cards, allowing consumers to purchase goods and services now and pay later. This system relies on the promise to pay in the future, utilizing money as a standard of deferred payment.

  • Loans: Various types of loans, including home loans and personal loans, are available in India. These financial products demonstrate how money functions as a standard of deferred payment, allowing individuals and businesses to borrow money for future use.

Conclusion​

Understanding the functions of money is essential for anyone interested in economics, particularly in the context of India. By grasping these concepts, students can better comprehend how economies function and how monetary policies impact society.

Real-world examples like digital payments, e-commerce, inflation rates, and credit facilities demonstrate how money performs its various functions in modern India. As technology continues to evolve, it's exciting to consider how these functions may change in the future, perhaps becoming even more efficient and accessible to the Indian population.