Q: Discuss the role of money in the Modern Economy?



The word money is derived from the Latin word “Moneta” which was the surname of the Roman Goddess of Juno in whose temple money was coined. The actual of money can be more accurate!}’ defined as:

Definitions of Money


  1. According to Crowther:

Anything that is generally acceptable as a medium

of exchange & at the same time acts as a measure

and store of value is called money.

  1. According to D.H.Cole:

‘Purchasing power with which something can

be bought is called money

  1. According to J.M.Kevnes:

“Money is that by the delivery of which debt contracts

and price contracts are discharged and in the shape of which

purchasing power is held”

A    According, to Walker:

“Money is what money does”

5    Legal definition of money:

Some economists define money in legal terms saying that:

“Anything which the state declares money is money.

Such money possesses general acceptability and has

the legal power to discharge debts



Role of Money:

Money is the master key of any economic problem in the world. All economic activities are based upon money. Marshall says that.

“Money is the pivot around which economic sciences clusters”

The following points are stated to explain the role of money.


Roll of MONEY


Production                                                                             Industries

Consumption                                                                         Banks & financial institutions

Distribution                                                                            Trade

Exchange                                                                               Government

Revenue                                                                                 Borrowing & Debt servicing


Money has made mass production possible. The producer produces because of profit motive production is calculated in terms of money and sale price is also determined in monetary terms. Money gives mobility to capital, which can be used for further production of wealth.



Money helps the consumer to spend his income in such a way so that he can get maximum satisfaction. Money has generalized the purchasing power. Money helps the people to know the quantity and the quality of goods needed by the consumer. Both income and consumption expenditures are stated in money terms



The production is made through various factors of production like land, labor, capital and organization. Each factor should be given his share on the basis of his marginal productivities, which can be done with money. The distribution of national income is also based on money. Govt. with the help of money can distribute resources among various sector of economy.



The exchange of goods and services is done through money. The value of both exchangeable goods is determined through money. The purchase & sale of goods & sen-ices on cash basis is done through money. The credit transactions can also be made through money.



Public finance means the raising of money through taxes by the government. The tax collection and the imposition of new taxes is possible through money. Money is used to measure the tax paying capacity of the rich people.


The industrial progress is linked with money. Promotion of big companies arrangements of loans to expend the business and the establishment of stock exchange markets depends upon money. Money provides life to new companies.


  1. Banks and Financial Institutions

Money is the basis for the functions and operations of banks and financial institution. Money is the only commodity that is purchased and sold by the banks. The money market, capital market and bill market are based upon money. The creation of credit is possible with money.


  1. Trade

Money helps both local and foreign trade. Money is a mean of payment for the goods and services purchased. Therefore the development of trade, economic cooperation, foreign aid and transfer of technology are based upon money.

  1. Government

Money is important to the govt. Taxes, fees and fines are collected in money. The govt. can take the loan in the shape of money. The monetary and fiscal policies of the govt are connected with money. The management of various departments divisions and other matters depends upon money.


  1. Borrowing & Debt Servicing

The borrowing of a person and borrowing of government, all these are possible only because there is money in the world. Further the debt servicing and rescheduling is also possible because of existence of money.



Today, in almost all economies money plays an important role as discussed above. It helps in running the wheels of even7 economy. So the development in today’s world without money is out of question.

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