Since the beginning of its existence, money is not only a medium of exchange or payment, but is also a store of value and unit of account. The three functions of money are inherent in money and are inseparable. The following is a further explanation of the three functions of money.
Medium of Exchange or Payment
Money is a medium that can be used by people to exchange goods and services owned or needed, in which money is used as a means of payment. In this regard, goods and services are exchanged using money. As a medium of exchange or payment, money must be able to store value, be easy to count its value, and be easy to carry everywhere. Now, money does not have to be physical so that exchange or payment is easier to do. As the medium of exchange or payment, the development of money parallels the dynamics of the economy. When an economy develops, the money supply needs to be increased to facilitate transactions. Vice versa, the money supply decreases as a recession occurs.
Store of Value
Money is a medium that has value and can store value. By having that value, money can be used as a means of payment in buying and selling. That is why people used to use gold and silver as money. With its function as a means of payment that is widely accepted by the public and the belief that central banks will maintain its value, making money a valuable medium and can store value despite its low intrinsic value. Its function as a medium of exchange or payment requires the value of money to be maintained. As a store of value, money is an asset that can be made part of an asset portfolio. Money is a liquid asset, without return, but it needs to be held because liquidating assets into money is sometimes expensive or incurs transaction costs that are not small.
Unit of Account
The function of money as a unit of account is closely related to its function as a means of payment in buying and selling. People use money as a unit in setting prices for various goods and services. As a unit of account, the prices of various goods and services are valued in money so that payment for the sale or purchase of these goods and services is easy to make. The function of money as a unit of account remains attached even though there are no buying and selling transactions. People can calculate whether they have enough money to buy certain goods and services or the impact of inflation on the value of money and its declining purchasing power.