Standard of Deferred Payment - Functions of Money

Functions of Money

Money is held to serve multiple distinguished but related functions, of which a "standard of deferred payment" is one. The most commonly distinguished functions of money are as a medium of exchange, a unit of account, a store of value, and, sometimes, a standard of deferred payment, summarized in a mnemonic rhyme of older economics texts:

"Money is a matter of functions four, a medium, a measure, a standard, a store."

However, many newer texts do not distinguish the function of a standard of deferred payment, subsuming it in other functions.

Being a standard of deferred payment is one of the functions of money; it is distinct from:

• the medium of exchange function which is used for immediate payments, not deferred payments and requires durability when used in trade, and a minimum of opportunity to cheat others — as the diamond or gold example below illustrate;
• the store of value function, which relates to the saving, storing, and retrieval of value; and
• from the unit of account function which requires fungibility so accounts in any amount can be readily settled.

When currency is stable, money can serve all four functions. When it is not, or when complex and volatile forms of financial capital are involved, some may wish to identify a single standard of deferred payment to avoid cheating by selecting a denominator of debt that one believes to be dropping in value.