Short Answer

Standard of deferred payment is a function of money that means money is used to make payments in the future. It allows people to buy goods or take loans now and pay later in a fixed amount of money.

This function makes borrowing and lending easy and reliable. Since money has a stable value and is widely accepted, it is used as a standard for settling future payments.

Detailed Explanation:

Standard of Deferred Payment

Meaning of Deferred Payment

Standard of deferred payment means that money is used as a measure to settle payments that are to be made in the future. In simple words, it allows people to make agreements today and complete the payment later using money.

For example, when a person takes a loan from a bank, they promise to repay it after a certain time. The repayment is fixed in terms of money. This makes future payments clear and easy to understand.

Role in Borrowing and Lending

This function is very important for borrowing and lending activities. People can borrow money when they need it and repay it later. Similarly, lenders can trust that they will receive the agreed amount in the future.

Money provides a standard way to fix the value of future payments. This reduces confusion and makes financial agreements more reliable. Without this function, loans and credit systems would be very difficult to manage.

Better Than Barter System

In the barter system, deferred payments were very difficult. There was no common measure to decide how much should be returned in the future. Also, the value of goods could change over time, creating disputes.

Money solves these problems by providing a fixed and widely accepted value. It ensures that both parties agree on the amount to be paid later. This makes transactions more smooth and fair.

Stability of Value

Money is suitable for deferred payments because it has relative stability in value. Although its value may change slightly due to inflation, it is still more stable compared to goods.

This stability makes it easier to fix future payments. People trust money as a reliable medium for settling debts and obligations over time.

Encourages Economic Activities

The function of deferred payment supports many economic activities. It encourages credit, investment, and business expansion. People and businesses can plan their activities with the help of loans and future payments.

For example, businesses often borrow money to invest in production and repay it later from their profits. This helps in economic growth and development.

Importance in Modern Economy

In modern economies, deferred payments are very common. People use money for paying installments, loans, and credit purchases. This function supports the banking and financial system.

It makes long-term transactions possible and helps in smooth functioning of the economy. Without it, many economic activities would be limited.

Conclusion

Standard of deferred payment is an important function of money that allows payments to be made in the future. It makes borrowing, lending, and credit transactions easy and reliable. By providing a fixed standard for future payments, money plays a key role in economic development.