Money plays an important role in the modern economy.
In our economy today, money facilitate the exchange of goods and services, serves as a means of deferring payment and serves as means of settling debt.
Indeed, no modern economy can function smoothly without the use of money.
Money influences and facilitates all economic activities ranging from consumption, production, exchange and distribution of goods and services.
The importance of money are as follows:
1. Money facilitate trade: Money facilitates the exchange of goods and services.
With money, buyers and sellers can simply agree on a price for a good or service, and the transaction can be completed using the money as a means of payment.
Money not only facilitate internal trade, but money also facilitate international trade.
Money ensure that two or more countries can agree on a price for the goods or services being traded in a common currency., such as US dollars, or Euros, thus facilitating international trade.
Money form the basis for exchange of goods and services between individuals, business and countries, and, is indeed, a facilitator of trade.
2. It is importance as a form of wealth: Money is considered as an essential form of wealth in modern times due to its ability to be stored and converted into various forms of assets.
Wealth can be stored in form of money without loss since the value of money is relatively stable.
Moreover, money has the advantage of being a highly liquid asset in that it can easily be converted into other forms of wealth.
For example, an individual or business can use their money to purchase financial assets, such as stocks or bonds, or buy a house. This flexibility makes money a desirable form of wealth, because possession of money provides a wide range of investments.
3. Money is importance as a medium of exchange: Money, being a medium of exchange, allows individual buys goods and services.
Everything can be bought and sold through the medium of money.
Without money, it would be difficult for people to trade goods and services because they would have to exchange goods directly for other goods.
However, with money, buyers and sellers can simply agree on a price for a good or service, and the transaction can be completed using the money as a medium of exchange.
Money serves as the general medium of exchange through which goods and services are sold.
4. Importance to the distribution of income in the economy: Money is important because it facilitate distribution of national income.
The income from production in an economy is distributed in terms of money.
People in a country join together as workers, capitalists, entrepreneurs and landlords and produce goods and services.
The income from output jointly produced will have to be distributed between all of them.
Money, therefore,helps in such distribution in the form of wages, interests, profits and rents.
5. It constitute an important form of claim: Money constitutes the most important form of claim in most modern economies.
Money serves as a claim over all other things because it is a liquid asset that can be used by the possessor to buy any goods and services at any place and at any time.
Because money serves as an important form of claim, everyone likes to hold sufficient amount of cash for various purposes.
6. Money is important to budgeting and accounting: Without money, efficient accounting and Budgeting would become impossible.
Money is important for accounting because accounting records must be expressed in monetary terms, as per the money measurement principle.
Accounting records of assets, liabilities, capital, revenues and expenses are usually expressed in monetary terms because money serves as the common denominator for all financial transaction.
More so, budget is usually expressed in monetary terms. For example, if you are told that Nigeria has just prepared 2023 budget, it will makes no sense to you.
But, if you are told that the 2023 budget is N20.51 trillion, it will make sense to you.
7. Money is importance for money and credit creation: The amount of credit that bank can advance depends on the money available to them.
Generally, banks will advance more credit if they have money.
So, money is very important for credit creation.
8. Importance to capital formation: Capital formation is an increase in the capital stock of an economy.
With money, savings can be made by the people, which can be made available to those who want to invest the same in various productive activities.
This, in turn increases the capital stock of an economy.
Thus, capital formation is possible only through money.
9. It is important for producers: Every producer would love to produce on a large scale.
However, production on a large scale is not possible without the use of money.
Producers required money to buy sophisticated equipment that will facilitate large scale production.
Also, money helps producers buy necessary raw materials and advertised finished goods.
Through money, the producer can discover through the price mechanism what people want and how much they want.
Money enables the producer to decide as to what should be produced and in what quantities to produce and make the best use of the available resources.
Hence, Money is essential for producer.
10. It is important to consumers: Just as money is also importance for producers, money is also important for consumers.
With money, a consumer can postpone his demand for a goods.
For example, if a consumer feels that the price of a particular commodity is high, he can postpone the purchase of the commodity tills its price falls down to a more reasonable level.
Money allows consumers postpone their demand for goods and services because the value of money is relatively constant.
The general acceptability of money allows consumers buy whatsoever goods they want, thus allowing the consumers to satisfy their wants.