Paying your monthly cell phone bill is a regular occurrence for most people these days. We don’t think twice about handing over cash, swiping a card or paying online to cover the cost. But have you ever considered what essential function of money is being served in that transaction? When you use cash specifically to pay your phone bill you are tapping into money’s most fundamental role as a medium of exchange.
Overview of the Functions of Money
Before diving into how paying bills highlights the exchange function of money, it helps to understand the core functions that make money so vital to the economy. Scholars traditionally recognize 3 primary functions of money:
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Medium of exchange – This is money’s role as an intermediary that can be traded for goods services and to repay debts. Using money facilitates transactions much more efficiently than a barter system.
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Store of value – Money acts as a way to preserve purchasing power over time. This lets people save, invest and build wealth.
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Unit of account – Money provides a common unit to set prices and record debts This simplifies accounting, bookkeeping and commerce.
These 3 classic functions underpin money’s utility. Modern monetary systems also rely on additional functions like money serving as a standard of deferred payment, standard of value and even a status symbol. But the original 3 functions still offer the clearest insight into what gives money value and purpose.
Cash Transactions Demonstrate the Medium of Exchange Role
With this broader context around the core functions, it becomes clear that using cash to pay a bill emphasizes money’s exchange function. Let’s break it down step-by-step:
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You receive a monthly statement from your cell provider tallying the services used over your billing cycle along with the total amount owed. This encapsulates money’s unit of account purpose – the bill is a standardized way for the company to tell you your financial obligation for the period.
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You retrieve paper cash from your wallet, purse, or an ATM. This cash began life as a store of value you previously set aside from past income.
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You hand the cash over to the clerk or insert it into a payment kiosk. This physical transfer of currency represents the medium of exchange at work. Your cash is being directly traded for the cell services consumed each month.
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The cell company accepts your cash payment. From their perspective, your currency equally serves as a medium of exchange – they receive liquid assets with agreed upon value in exchange for the services rendered.
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The transaction is complete. Your bill is settled because your money successfully served as an intermediary that both parties accepted without dispute. Cash facilitated settlement in a much more efficient, liquid manner than trying to find a way to directly barter your specific skills or assets for cell service.
Key Takeaways on Money’s Exchange Function
Whenever money is directly traded for a good or service – like paying bills with cash – it is effectively serving as a medium of exchange. Key points to remember include:
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The exchange function is essential to money’s usefulness because it allows specialized, indirect transactions between parties. This fuels economic growth.
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Directly trading money for something of value is the purest demonstration of its exchange function. The transacted money balances out the value of whatever is received.
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While other payment methods like checks and cards remove the physical exchange of currency, they still ultimately rely on money’s exchange utility. The value passes through intermediary financial institutions.
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Medium of exchange underlays most spending, income and commerce. Any time goods, services, assets or debts change hands for money it qualifies as an exchange.
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For an exchange to occur both parties must consent and accept the money as a fair value for whatever is being traded. A shared belief in the currency being used is critical.
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Electronic payments have reduced how often physical currency is directly handed from one party to another. But the exchange function remains unchanged at the core of these digital transactions.
Step 2
Select Pay & Transfer to get started.
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Select your “From” account for the transfer and then your “To” recipient. Enter the amount you want to send; the transfer will be sent in the currency you selected for the recipient. If needed, click Change default currency to update currency.
Note: There are no outbound wire transfer fees if sent in foreign currency. Markups are included in Bank of America exchange rates, which are determined by Bank of America in its sole discretion. You may be prompted to request an Authorization Code when your transfer exceeds a certain amount.
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FAQ
What function of money is cash?
Cash is more than just a payment instrument. It allows people to hold money for saving purposes without default risk. It is useful for small person-to-person gifts and payments.
What function of money is highlighted when TSAI pays her water bill with cash?
When Tsai pays her water bill with cash, it shows that money serves as a medium of exchange. By this, we understand that cash is being used to help Tsai and the water company trade goods and services.
When I use money to pay my cell phone bill, which function of money is being used?
Third: Money is a medium of exchange. This means that money is widely accepted as a method of payment.
What function of money is highlighted when I put cash under my mattress to have on hand for unexpected emergencies?
People who put cash under their mattress to have on hand in case of an emergency are emphasizing the “store of value” part of money. ” Money serves as a store of value when it can be held and saved for future use.