Explain the 'standard of deferred payment' function of money. How has it solved the related problem created by the barter system?
Explain the 'standard of deferred payment' function of money. How has it solved the related problem created by the barter system?
Standard of deferred payment: Deferred payments refer to those payments which are to be made at some time in the future. In a modern economy, a large number of transactions involve future payments which can easily be stated in terms of money. This is possible because the value of money remains more or less constant and it possesses the quality of general acceptability. In the barter system, it was difficult to make such future payments in terms of goods and services. There was always the risk of increase or decrease in the value of the repayment commodity. There could also be disagreements regarding the quality of goods or services to be repaid.
This function of money has facilitated borrowing and lending activities and promoted credit. Financial institutions have been established primarily owing to this function of money.
Standard of deferred payment: Deferred payments refer to those payments which are to be made at some time in the future. In a modern economy, a large number of transactions involve future payments which can easily be stated in terms of money. This is possible because the value of money remains more or less constant and it possesses the quality of general acceptability. In the barter system, it was difficult to make such future payments in terms of goods and services. There was always the risk of increase or decrease in the value of the repayment commodity. There could also be disagreements regarding the quality of goods or services to be repaid.
This function of money has facilitated borrowing and lending activities and promoted credit. Financial institutions have been established primarily owing to this function of money.
