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The Use of Cash and Contactless Payments: Impact on Money Functions

Question

In many economies, the use of cash is declining as people use contactless payments that transfer funds directly between bank deposits.

Explain what represents money in a modern economy and how the use
of contactless payments without the use of cash will affect the functions
of money.

Category:

Microeconomics

CIE AS Level October/November 2022

Preview Answer

I. Introduction
A. Definition and evolution of money in modern economies
B. Shift from physical cash to digital forms of money
C. Focus on contactless payments as a key development

II. What Represents Money in a Modern Economy
A. Narrow measure⬅: Physical cash (banknotes and coins)
B. Broad measure⬅: Bank deposits (savings and checking accounts)
C. Contactless payments as a new form of money

III. Impact of Contactless Payments on the Functions of Money
A. Means of Exchange
1. Enhancement of money as a means of exchange
2. Limitations of universal access to technology

B. Store of Value
1. Alteration of the "store of value" function
2. Increased liquidity and convenience
3. Risks of cybercrime and technological glitches

C. Unit of Account
1. Continued role of money as a unit of account
2. Determining the value of goods and services

D. Standard for Deferred Payment
1. Influence of credit cards and bank overdrafts
2. Promotion of deferred payments
3. Potential increase in consumer indebtedness

IV. Conclusion
A. Recap of the evolution of money in modern economies
B. Importance of adapting to the changing dynamics of cash, bank deposits, and contactless payments
C. Need for effective management of the implications on the functions of money
D. The future of money as digital and the economic impacts of these changes

Tips for Answering the Essay⬅:

Start with a strong introduction⬅: Begin your essay with a compelling introduction that clearly presents the topic and provides an overview of what the essay will discuss. In this case, introduce the evolution of money in modern economies and the focus on contactless payments.

Define and explain key concepts⬅: Clearly define and explain the different forms of money in a modern economy, including physical cash, bank deposits, and contactless payments. Ensure that the reader understands the distinctions between these forms and how they contribute to the overall understanding of money.

Address each function of money⬅: When discussing the impact of contactless payments on the functions of money, address each function individually (means of exchange, store of value, unit of account, and standard for deferred payment). Clearly explain how contactless payments affect each function and provide examples or evidence to support your points.

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