According to Crowther, "Money is anything that is generally accepted as a means of exchange and at the same time acts as measure and store of value."

Money performs different functions, but the functions of money can be categorized into three broad categories: primary functions, secondary functions, and contingent functions.

Primary Functions of Money

The two primary functions of money are to act as a medium of exchange and a measure of value.

1. Medium of exchange: This is considered the most important function of money because it is out of this function of money that other functions of money arise.

Money serves as a medium of exchange because it facilitates transactions between people and businesses.

Instead of goods being exchanged for goods as was the case with trade by barter, goods are now being exchanged through the use of money.

People now use money to buy goods and services because it is generally accepted as a medium of exchange.

Through the use of money, the issue of double coincidence of wants has been completely eliminated.

2. Measure of value: The second primary function of money is that it serves as a measure or unit of value.

Just as one had to resort to some standard of measurement, such as the length of string or a piece of wood on a barter system, money serves as a standard for measuring the value of goods and services in a monetary system.

Money provides a common denominator for determining the relative worth of goods and services.

The value of all commodities and services is now expressed in terms of money, that is, in terms of price.

For instance, if a book costs N100 and a pen costs N50, the book is worth twice as much as the pen.

The use of money as a common measure of value has eliminated the necessity of quoting the price of apples in terms of oranges, and the price of oranges in terms of nuts and so on.

Secondary Functions of Money

There are three secondary functions of money, namely; standard of deferred payment, store of value an means of transferring purchasing power.

1. Standard of deferred payment: Money allows individuals and businesses to defer payment for goods and services until a future date.

Money is used to both make and receive future payments. Future contracts of payments are also always calculated in terms of money.

Money makes it possible for businesses to extend credits to customers and for individuals to borrow money from other individuals.

Furthermore, businesses and individuals can borrow today and repay the loans with interest at a later date thanks to the use of money.

2. Store of value: Money also serves as a store of value, allowing individuals to store wealth.

For anything to function as a store of value, it must be able to store wealth and its value must be relatively stable.

Money has these characteristics as we can effectively store our wealth in the form of money since its value is fairly stable.

Commodities like rice, beans, wheat, horse, and goat which were used for exchange in the barter system cannot effectively serve as a store of value because they are perishable, not everlasting, and their value may deteriorate over time.

But in a monetary economy, wealth can be stored to any extent and for any length of time in the form of money or bank deposits.

Money is, therefore, an effective means of storing value.

3. Means of transferring purchasing power: Money serves as an important means of transferring purchasing power from one place to another by allowing currency notes or through cheques or demand drafts.

Contingent Functions of Money

Money also performs certain contingent functions, which include:

1. Facilitate distribution of national income: One important contingent function of money is that it helps distributes national income.

In an economy, the income earned from the production of goods and services is distributed among the factors of production through the use of money as wages, profits, interests, and rents.

2. Basis for credit creation: Money serves as the base for wealth creation because, without money, banks cannot grants credits to individuals and household.

Banks can only extend credit if they have sufficient cash reserves. If banks don't have enough reserves, they won't be able to create credit.

Hence, money serves as a basis for credit creation in an economy.


To summarize, we define money as anything which is generally accepted as a medium of exchange and which serves as a store of value and a measure of value at the same time.

Money performs three main functions, which are primary, secondary, and contingent functions.

The primary functions of money are that it is a medium of exchange and a measure of value.

The secondary functions of money are that it is a standard of deferred payment and a store of value.

The contingent functions of money are that it facilitates the distribution of national income and serves as a basis for creation.