money

1. Money: Definition, Functions and
Importance
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2. • Conceptually, money can be defined as any commodity that is
generally accepted as a medium of exchange and a measure of
value.
• H. G. Johnson has classified, the approaches to the definition
of money under the following four categories:
i. The Conventional approach,
ii. The Chicago approach,
iii. The Central Bank approach, and
iv. The Gurley-Shaw approach.
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Definition of Money

3. • The conventional approach to the definition of money is the
oldest and the most widely accepted approach.
• The conventional definition of money emphasises the basic
functions of money, that is, the medium of exchange and
measure of value.
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The Conventional Definition

4. • The Chicago approach was pioneered by Milton Friedman of
the Chicago University and his associates, called jointly as
Chicago school.
• The Chicago school has broadened the definition of money to
include three components: (i) currency, (ii) chequeable
demand deposits, and (iii) time deposits.
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The Chicago Approach

5. • According to the Gurley-Shaw approach, money supply should
be defined as a weighted sum of currency, demand deposits
and all the deposits and claims against the financial
intermediaries that can be treated as the substitutes for
currency and weightage of demand deposits should be
determined on the basis of the degree of their substitutability.
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The Gurley-Shaw Approach

6. • The central banks take a broader view of money supply.
• Central banks view all available means of payment and credit
flows as money.
• For their purpose, money supply constitutes currency plus all
‘realisable assets,’.
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The Central Bank Approach

7. 1. Metallic coins
2. Paper money
3. Bank deposits
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The Kinds of Money

8. 1. Money as a medium of exchange
2. Money as a measure of value
3. Money as a store of value
4. Money as a standard of deferred payments
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Functions of Money

9. 1. Money eliminates the problems of barter system
2. Money works as a factor of production
3. Money accelerates the pace of production and growth
4. Money is the lifeblood of a modern economy
5. Money contributes in many other ways
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Contributions of Money to Modern
Economy