The metallic coins were unsafe to carry from one place to another. Therefore, traders began to carry the written documents issued by well known financiers as evidence of the quantity of money at their command. The written documents were not actual money, but were accepted and exchanged for money. When such documents were issued by governments, they were called as promissory notes’ or currency. Later on, the central banks established by the government started printing notes that had the guarantee of the government. This paper money became legal tender that is the legally acceptable money. No individual can refuse the legal tender in that respective country. The legal tender is called as Rupee in India: Dollar in the USA; Pound in England: Euro in Europe: Yen in Japan: Yuan in China, etc.
The function of Money:
The important primary functions of money are:
1. Primary or main functions:
- Medium of exchange or means of payment: Money is used for selling and buying goods and making corresponding payments.
- Measure of Value: The prices of all goods and services are expressed in terms of money only.
2. Secondary functions:
- Standard of deferred payments: Money eases future transactions too. A borrower is under an obligation to pay a specified sum of money on a specified future date.
- Store of value: Since the future value is assured, money has made it possible to save or store wealth for the future and help in its accumulation.
- Transfer of value: The introduction of money has made the exchange of goods to distant places possible.
