Traditionally, money has three functions:
- Medium of exchange. This is money’s primary use - to exchange it for goods and services.
- Store of value. It allows you to retain your purchasing power over time. Or put another way, it allows you to redeem your current work for goods and services in the future. The better money is as a store of value, the more goods and services you’ll be able to exchange for it in the future.
- Unit of account. This is the unit in which prices are quoted. The U.S. dollar is the world’s reserve currency. Many things outside of the US are priced in it (including oil) and most people worldwide understand things that are “priced in dollars”.
This video explains these three functions in more detail.