1. What are advantages of token money over commodity money?
Firstly, we need understand definition of token money and commodity money. Token money is a means of payment whose value or purchasing power as money greatly exceeds its cost of production or value in use other than as money. Commodity money is a useful good that serves as a medium of exchange.
Secondly, advantages of token money over commodity money. Token money has many advantages compared with commodity money.
The value of commodity money is a about equal to the value of the material contained in it. The principal materials used for this type of money have been gold, silver and copper. To use commodity money society must either cut back on other uses of that commodity or devote scares resources to producing additional quantities of the commodity. But there are less expensive ways for society to produce money.
A token money is a means of payment whose value on purchasing power as money greatly exceeds its cost of production or value in uses other than as money. The essential condition for the survival of token money is the restriction of the right to supply it. Private production is illegal society enforces the use of token money by making it legal tender. The law says it must be accepted as a mean of payment.
2. What are functions of money?
Money is one of the man’s greatest inventions an essential tool of civilization. Money is any medium of exchange that is widely accepted in payment for goods and services or settlement of debts. There are 4 general functions of money.
Money as a medium of exchange
Money as a measure of value
Money as a store of value
Money as a standard of deferred payments
Money, the medium of exchange is used in one-half of almost all exchange labor services for money. People buy and/ or sell goods in exchange for money.
Money can also serve as a measure /standard of value. Society considers it convenient to use a monetary unit to determine relative’s costs of different goods and services.
Money is a store of value because it can be used to make purchase in future. But money can become worthless because it real purchasing power is eroded by inflation that is why stamp collections and interest- bearing bank account all serve as a store of value and can be exchanged to money.
Finally, money can be used as a standard of deferred payment. When you buy something but do not pay for it immediately, your payment is expressed in terms of money to be paid in the future.
