Money has many economic functions
- means of payment, which allows to perform transactions in an efficient manner ;
- unit of measurement, which allows to calculate and compare the values of different goods on a singular basis and thus reduce the practically endless amount of relative prices (one good’s price expressed through the price of the other good),
- store of value, which allows to store assets in a liquid and easy to use form. Without using money as a means of payment and a unit of measurement, the functioning of an economy based on the distribution of work, is practically impossible. In the conditions of a rapidly increasing inflation, the functioning of money may be harmed in such a capacity that as a means of payment and also a unit of measurement other equivalents to money are used (precious metals, cigarettes, foreign currency etc).
Money is a general legal means of payment, which can be used in exchanging it to other goods with a rate that is fixed by the purchasing power of money and the prices of goods.
The basis for the existence of money is a social contract to use something as a means of exchange. This contract may be direct or indirect, voluntary or mandatory. The value of money may change due to inflation and deflation.