Definitions of Money There is no commonly acceptable definition of money Some define money as anything acceptable I payment of goods and services or in settlement of debt. Some say money is anything that performs the function of medium of exchange, measure of value and store of value . Johnson has given four approaches to define the concept of money :

Approaches of money Approaches Conventional Approach Gurley and Shaw Approach Central Banking or Redcliffe Approach Chicago Approach

1. Conventional Approach In this approach money is defined on the basis of its functions. “ Money is what money does.” In words of R P Kent, “ Money is anything that is commonly used and generally accepted as a medium of exchange or as a standard of value.” Geoffry Crowther says, “ Money can be defined as anything that is generally acceptable as a mean of exchange and at the same time acts as a measure and store of value.” Gist of this definition: Money= Notes +coins + Demand Deposits

2. Chicago Approach Given by Nobel Laureate Friedman. He says, “ Money is temporary abode of purchasing power.” In monetary economy, every transaction has two aspects: sale and purchase. It is essential to hold purchasing power in terms of money till such time the transaction is performed. So Money= Currency+ Demand Deposit+ Time Deposit This definition widened the scope of concept of money

3. Gurley and Shaw Approach This approach says money should include all instruments which are close substitute of each other. So Money= Currency+ DD +TD +Savng Bank Deposit +Shares +Bonds +…….. Credit instruments issued by financial intermediaries –banking and no-banking and thrift societies like LIC, Saving Bank etc have high quality of liquidity. So these should be also included in money.

4. Central Banking or Redcliffe Approach This approach also includes credit in the definition of money. So credit extended by NBFI including unorganized institutions is also included in definition of money. Money= Currency+ DD+ TD+ Saving Deposit+ Shares+ Bonds+ Securities+ Credit from unorganized sector

Characteristics of Money General acceptability Voluntary Acceptability Medium of Exchange Money is a mean not an end Government control Liquid Asset Money is not a veil

Functions of Money Functions of Money Primary Functions Secondary Functions Static and Dynamic function Contingent Functions

Standard of Deferred Payments Functions of money Primary Functions Secondary Functions Medium of Exchange Measure of Value Standard of Deferred Payments Store of Value Transfer of value

Functions of Money Basis of Credit Creation Maximum Satisfaction Contingent Functions Static and Dynamic Functions Basis of Credit Creation Maximum Satisfaction Distribution of National Income Bearer of option Guarantee of Solvency Increase in the liquidity of capital Static Functions Dynamic functions

Importance of Money In consumption In production In exchange In trade Direct importance in the field of Economics Indirect importance in the field of Economics In consumption In production In exchange In trade In distribution In public finance Capital formation Freedom from barter Solution of Central Economic problems Basis of Credit Index of Economic Development Increase in mobility of capital Measure of social welfare National and international unity

Disadvantages of Money Economic Evils Social Evils Instability of value Trade cycles Over- Capitalization Economic wastage Unequal distribution of wealth Problem of black money Encourages materialism Tendency of Exploitation Increase in immoral tendencies