Modern economies are monetary economies, where money forms an essential factor in the day to day activities. We buy and sell things for money, borrow money, lend money, the taxes are paid to the government and the payments received are in terms of money. The institutions of money were not developed or introduced at a sudden, the development of money was considered as an epitome in the history of civilization. A correct and complete definition of money should bring out the important functions performed by money.
There are different functions of money they include the legal tender issued by the monetary authorities and the demand deposits of the commercial banks which are withdrawable on demand and money that is used by the public. Money is a boon, like blood to the body, money is to the economy of the country. In economics money is the essential invention on which all functions and activities are based, it is a dominant player in the field of activities like consumption, production, exchange and the public finance. There are static and dynamic functions of money.
As the static functions of money, they serve as the passive technical devices ensuring the sure operation of the economic system without the influence of external factors. Money functions can be defined as the medium of exchange, the measure of the value of deferred payments, and the store of value. Static functions of money can be divided into primary and secondary functions. The primary functions of money may include them as the medium of exchange and the measure of value. money as the medium of exchange consists of the generalized purchase power.
The freedom of choice that the use of money affords to both the sellers and the buyers. The money as the measure of value determines the money as the unit. As the measure of value, economic accounts are kept in terms of money, and contracts are settled in terms of money. The secondary functions of money are used as deferred payments, which are referred to as the credit system. the other secondary function is the store of value, where the money is recognized as the generalized purchasing power. It involves the shifting of the purchase from the present to the future.
The cigarette was similarly considered as an accountable unit as the measure of value, store of value, and the means of the deferred payment, in similarity to the money. Cigarettes can be considered a good form of money as they relate to Gresham’s law of the exchange of goods for money. They are considered as the bad form of money as they are not consistent in prices and secure. There were certain agonies faced in the POW camps due to the price variations.