The use of money has converted a barter economy into a monitory economy or money economy. The money has overcome the difficulties of barter system in the following ways.
1. Use of money:
Money is used now as a:
i. Medium of exchange:
The goods and services are now purchased and sold with the help of money. The difficulty of double coincidence of wants has been removed with the help of money.
ii. Money now serves as a common measure of value. The problem of comparing the prices of goods and services in the market is now simplified.
iii. With the help of money, the exchange of present goods on credit has been made easier. The problem of deferred payments has been solved with the help of money.
iv. Money as a liquid store of value has facilitated its processor to purchase any other asset at any time.
v. Through money, value can be easily and quickly transferred from one place to another.
2. Liquidity to wealth::
Money imports liquidity to various forms of wealth such as land, machinery and stock stores etc. these forms of wealth can be easily converted into money.
3. Establishment of financial institutions:
The introduction of money has made it possible to establish financial institutions like central bank, commercial banks etc, which deal in currency and near money assets. Examples bill of exchange, bond and shares.
4. Market mechanism:
In a monitory economy market mechanism operates; the demand and supply are brought into balance by the movement of prices. The decision of what? How? And are whom to produce are determined in accordance with the market conditions.
5. Process of development:
In a barter economy the process of economic development is slow. With the use of money, division of labour has taken place, technology has developed, trade has expended in a monitory economy, and there is thus an all around economic progress.
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