What is value of money?

The value of money refers to its purchasing power—the quantity of goods and services it can buy. It has two dimensions:

1. Nominal Value: The face value printed on currency (e.g., ₹100).
2. Real Value: Its actual purchasing power, which fluctuates inversely with price levels (inflation reduces real value, deflation increases it).

Money’s value also depends on its functions:

• As a medium of exchange, it facilitates transactions.
• As a store of value, it preserves wealth (though eroded by inflation).
• As a standard of deferred payments, it settles future debts.

Factors affecting value:

• Supply of money (excess supply → inflation → lower value).
• Price level (higher prices → lower purchasing power).
• Confidence in the economy (stable institutions → higher value).

Thus, money’s value is dynamic, not fixed, and reflects both its nominal worth and real utility in the economy.