EconomicsICSE Class 10 · Chapter 8

Money ICSE Class 10 Economics: From Barter to the Functions of Money

Updated 14 October 2026 · Fact-checked

Money is anything generally accepted as a medium of exchange and declared legal tender by law. ICSE Class 10 tests the inconveniences of the barter system, the evolution of money, the legal definition of money, and its four functions: medium of exchange, measure of value, standard of deferred payment and store of value.

What Money is about

Before money existed, people exchanged goods directly for other goods. This barter system worked in small, simple societies, but as trade grew its difficulties became serious. Money was invented to remove them.

The syllabus asks for: a basic understanding of the inconveniences of barter and how money evolved; the legal definition of money; and the four functions of money: medium of exchange, measure of value, standard of deferred payment and store of value. The first two are called primary functions and the last two secondary functions.

Board questions include MCQs on the essential feature of barter (double coincidence of wants) and on primary and secondary functions, and 2-mark questions such as the legal definition of money or why deferred payments were a problem under barter. CISCE examiners' comments show students giving the functional definition when the legal one is asked, mixing up primary and secondary functions, and not using the key words 'future payments' when explaining deferred payment.

Weightage: CISCE publishes no chapter weightage. The paper has a compulsory Section A (40 marks: 16 one-mark MCQs and three 8-mark questions of four 2-mark parts) and Section B, where you answer any four of six 10-mark questions (two 5-mark parts each).Source: CISCE ICSE Economics (641) specimen paper structure, 2025, retained for 2027 by the CISCE circular of 9 October 2026

Key concepts

Barter system and its inconveniences

Barter is the direct exchange of goods and services for other goods and services, without the use of money.
Essential feature: barter requires a double coincidence of wants: each party must want what the other offers, at the same time.

Inconveniences:
1. Lack of double coincidence of wants: a farmer with wheat who wants shoes must find a shoemaker who wants wheat.
2. Lack of a common measure of value: there is no common unit to express the values of all goods, so exchange ratios (how much wheat for one goat) are hard to fix.
3. Indivisibility of goods: some goods cannot be divided without losing value (a cow cannot be cut to buy a pair of shoes).
4. Difficulty in storing wealth: most goods are perishable or costly to store, so saving for the future is difficult.
5. Lack of a standard of deferred payment: future payments (loans, debts) in goods are a problem because the goods may change in quality and value, and the parties may disagree about the kind and quality to be returned.
6. Difficulty in transferring value from one place to another.

Worked example

(2 marks) How was standard of deferred payment a problem in the barter system?

Try it first, then show the solutionSolution

Deferred payments are future payments, such as repaying a loan later - 1 mark.
Under barter, loans had to be repaid in goods, whose quality and value could change, leading to disputes about what should be returned - 1 mark.

Answer: Future payments, such as the return of a loan, had to be made in goods. Since the quality and value of goods could change over time and people could disagree on the kind of goods to return, lending and borrowing were difficult under barter.

Evolution of money

Money developed in stages:
1. Commodity money: goods that were widely wanted were used as money: cattle, grain, salt, shells.
2. Metallic money: metals, especially gold and silver, and later coins of fixed weight, because they were durable, divisible and valuable in small quantities.
3. Paper money: notes issued by banks and later by the government or central bank; light and easy to carry. Today's currency notes are legal tender.
4. Bank or credit money: demand deposits in banks, transferred by cheques and drafts.
5. Plastic and digital money: debit and credit cards, net banking, mobile wallets and UPI, which transfer money electronically.

Each stage made exchange easier, safer and faster.

Worked example

(2 marks) Why did metallic money replace commodity money?

Try it first, then show the solutionSolution

Commodity money such as cattle or grain was perishable, bulky and hard to divide - 1 mark.
Metals like gold and silver were durable, divisible, portable and valuable in small quantities - 1 mark.

Answer: Commodity money was often perishable, bulky and indivisible. Metals were durable, easy to divide and carry, and of high value in small amounts, so metallic money replaced it.

Legal definition of money

Legal definition: money is anything that is declared by law (by the government or central bank) to be money and that must be accepted by everyone in payment for goods and services and in settlement of debts. Such money is called legal tender. In India, currency notes issued by the Reserve Bank of India and coins issued by the Government of India are legal tender.

This differs from the functional definition: 'money is what money does', meaning anything that performs the functions of money (a generally accepted medium of exchange, measure of value and so on) is money. When the question says 'legal', give the legal definition.

Worked example

(2 marks) What is the legal definition of money?

Try it first, then show the solutionSolution

Money is anything declared by law to be money (legal tender) - 1 mark.
Everyone is legally bound to accept it in payment for goods and services and in settlement of debts - 1 mark.

Answer: Legally, money is anything that the government declares to be legal tender, which everyone must accept in payment for goods and services and in settlement of debts, such as RBI currency notes and government coins in India.

Primary functions: medium of exchange and measure of value

Medium of exchange: money is accepted by everyone in exchange for goods and services. It splits barter into two separate acts, sale and purchase, removing the need for a double coincidence of wants. A farmer sells wheat for money and uses the money to buy shoes from anyone.

Measure of value (unit of account): money is the common unit in which the value of all goods and services is expressed as prices. This makes it easy to compare values, keep accounts, calculate profits and fix exchange ratios. It solves the barter problem of no common measure of value.

These two are the primary (main) functions of money.

Worked example

(2 marks) Explain how money as a measure of value removes a difficulty of barter.

Try it first, then show the solutionSolution

Under barter there was no common unit to express the value of goods, so exchange ratios were hard to fix - 1 mark.
Money acts as a common unit: the value of every good is expressed as a price in money, so values can be compared easily - 1 mark.

Answer: Barter had no common measure of value, making exchange ratios difficult. Money provides a common unit, so the value of every good is expressed as a money price and can be compared directly.

Secondary functions: standard of deferred payment and store of value

Standard of deferred payment: money is the unit in which future payments are expressed and made, such as repayment of loans, salaries, rent and instalments. Because money has a fairly stable value and is generally acceptable, lending and borrowing become easy, unlike under barter.

Store of value: money allows people to store wealth (purchasing power) for the future. It does not perish, costs little to keep, and can be converted into goods whenever needed. This solves the barter problem of storing perishable goods.

These two are the secondary functions of money, which follow from the primary ones. Store of value is NOT a primary function.

Worked example

(1 mark) Statement 1: The primary function of money is to act as a store of value. Statement 2: Money helps in the monetary expression of the market value of a commodity. Which is correct?

Try it first, then show the solutionSolution

Store of value is a secondary function, so Statement 1 is false.
Expressing value in money terms is the measure-of-value function, so Statement 2 is true.

Answer: Statement 1 is false and Statement 2 is true.

Money in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Double coincidence of wants

Suppose a baker wants vegetables, but the vegetable seller wants shoes, not bread. Under barter, the baker would have to find a shoemaker who wants bread, get shoes, and then trade them for vegetables.

Which inconvenience of barter does this show, and how does money solve it?

Try it first, then show the solutionSolution

The baker and the vegetable seller do not want each other's goods: no double coincidence of wants.
With money, the baker sells bread to anyone for money.
He then pays the vegetable seller in money, who can buy shoes with it.

Answer: It shows the lack of double coincidence of wants. Money, as a medium of exchange, splits the deal into a sale and a purchase, so the baker can sell bread to anyone and buy vegetables with the money.

Memory hook: Money removes the need for a perfect match.

Store of value

Imagine a mango grower who earns a lot during the summer season and needs to pay school fees in winter.

Why would storing mangoes be a poor way to save, and how does money help?

Try it first, then show the solutionSolution

Mangoes are perishable and lose value quickly.
Money does not perish and costs little to keep.
He can sell mangoes for money in summer and use it in winter: store of value.

Answer: Mangoes rot, so they cannot store wealth. By selling them for money, which keeps its value and does not perish, he can save for winter fees. This is money's store-of-value function.

Memory hook: Fruit rots; money keeps.

Legal tender

Suppose a shopkeeper refuses to accept a valid ₹100 RBI currency note from a customer and asks only for cash in coins of a particular kind.

Is the shopkeeper within his rights? Explain using the legal definition of money.

Try it first, then show the solutionSolution

RBI currency notes are legal tender.
Legal tender must by law be accepted in payment and settlement of debts.
So refusing a valid ₹100 note goes against its status as legal tender.

Answer: No. A valid RBI note is legal tender, which by law must be accepted in payment, so the shopkeeper cannot refuse it.

Memory hook: Legal tender: the law makes it acceptable.

Topics in this chapter

Barter, Evolution and Functions of Money

Money: key facts

Barter: Direct exchange of goods for goods; needs double coincidence of wants
Evolution: Commodity -> metallic -> paper -> bank (credit) -> plastic and digital money
Legal definition: Money = legal tender declared by law; must be accepted in payment and settlement of debts
Primary functions: Medium of exchange; measure of value
Secondary functions: Standard of deferred payment; store of value

How the board asks Money

The question patterns to expect, and the method that works for each.

Question type	How it is asked	Method
Feature and function MCQs (Section A)	Essential feature of barter; which function is primary; two-statement items.	Double coincidence of wants; primary = medium of exchange and measure of value.
Definitions (2 marks)	Legal definition of money.	Use 'declared by law', 'legal tender', 'must be accepted'.
Barter difficulties linked to functions (2 marks)	How was deferred payment (or storing value) a problem in barter?	Use the key words 'future payments'; explain the problem with goods.

Tricks to remember Money

Short memory aids. Say each one aloud once, then use it on a question the same day.

MM-SS
Primary: Medium of exchange, Measure of value. Secondary: Standard of deferred payment, Store of value.
Use it when: Classifying functions.
Barter's five Ds
Double coincidence missing, Dividing goods hard, Denominator (common measure) missing, Deferred payment difficult, Depositing (storing) wealth hard.
Use it when: Inconveniences of barter.
C-M-P-B-D
Commodity, Metallic, Paper, Bank, Digital.
Use it when: Evolution of money.

Money: board-level solved questions

Ordered from board level to HOTS. Cover the solution, write your own, then compare step by step.

Example 1: Essential feature of barter · 1 mark · MCQBoard level

Which is an essential feature of the barter system?
(a) Common measure of value
(b) Double coincidence of wants
(c) Use of coins
(d) Store of value

Try it first, then show the solutionSolution

Barter requires both parties to want each other's goods.

Answer: (b) Double coincidence of wants.

Example 2: Two statements · 1 mark · MCQHarder board level

Statement 1: The primary function of money is to act as a store of value. Statement 2: Money helps in expressing the market value of a commodity.
(a) Both statements are true
(b) Both statements are false
(c) Statement 1 is false and Statement 2 is true
(d) Statement 1 is true and Statement 2 is false

Try it first, then show the solutionSolution

Store of value is a secondary function.
Expressing value in money is the measure-of-value function, which is true.

Answer: (c) Statement 1 is false and Statement 2 is true.

Example 3: Legal definition · 2 marks · Very short answerBoard level

What is the legal definition of money?

Try it first, then show the solutionSolution

Money is anything declared by law to be money (legal tender).
It must be accepted by everyone in payment and settlement of debts.

Answer: Money, legally, is whatever the government declares to be legal tender, which everyone is bound to accept for payments and the settlement of debts.

Example 4: Deferred payment · 2 marks · Short answerHarder board level

How was the standard of deferred payment a problem in the barter system? How does money solve it?

Try it first, then show the solutionSolution

Future payments in barter were made in goods, whose quality and value could change, causing disputes.
Money provides a stable, generally accepted unit in which future payments such as loans are expressed and repaid.

Answer: Under barter, future payments had to be in goods, which could deteriorate or change in value, causing disputes. Money solves this because loans and other future payments can be expressed and repaid in a generally accepted unit of fairly stable value.

Example 5: Functions of money · 5 marks · Long answerHarder board level

Explain the four functions of money, stating which are primary and which secondary.

Try it first, then show the solutionSolution

Primary: medium of exchange: money is accepted in exchange for all goods, removing double coincidence.
Primary: measure of value: values of all goods are expressed in money, making comparison easy.
Secondary: standard of deferred payment: future payments are made in money.
Secondary: store of value: wealth can be saved in money for the future.
These secondary functions follow from the primary ones.

Answer: Primary functions: (1) medium of exchange, removing the need for double coincidence of wants; (2) measure of value, expressing all values as money prices. Secondary functions: (3) standard of deferred payment, allowing future payments in money; (4) store of value, letting people save purchasing power for the future.

Example 6: Barter in a modern setting · 5 marks · Long answerHOTS / competency

Suppose money suddenly disappeared from a modern city. Explain four difficulties people would face, linking each to a function of money.

Try it first, then show the solutionSolution

No medium of exchange: people would need double coincidence of wants for every purchase.
No measure of value: prices could not be compared; accounts could not be kept.
No standard of deferred payment: salaries, rent and loans could not be settled easily.
No store of value: savings would have to be kept in goods that may perish.
Overall trade, specialisation and banking would collapse.

Answer: (1) Every purchase would need a double coincidence of wants (no medium of exchange). (2) There would be no common prices or accounts (no measure of value). (3) Salaries, rent and loans could not be paid easily (no standard of deferred payment). (4) Savings would have to be held in perishable goods (no store of value). Trade and specialisation would collapse.

Example 7: Indivisibility · 2 marks · Short answerHOTS / competency

Give an example of the indivisibility problem in barter and explain how money solves it.

Try it first, then show the solutionSolution

A person with a horse wanting a pair of shoes cannot cut the horse to pay the right value.
Money can be divided into small units, so exact amounts can be paid.

Answer: A man with a horse cannot give 'a part of a horse' for a pair of shoes without destroying its value. Money can be divided into small denominations, so exact amounts can be paid for any good.

Case-study practice (Section B style)

Read the situation, then answer every part. In the board paper this is a 10-mark question split into 2 + 3 + 5 marks.

A village without money

Imagine a remote village where people still exchange goods. A potter wants rice but the rice farmer wants a goat; a weaver cannot agree with the blacksmith on how many shawls equal a plough; a farmer who borrowed grain last year now argues that the grain he received was of poor quality.

(i) · 2 marks
Identify the system and its essential feature.
Answer
Answer: The barter system; its essential feature is the double coincidence of wants.
1 mark each.
(ii) · 3 marks
Identify the three difficulties shown in the passage.
Answer
Answer: (1) Lack of double coincidence of wants (potter and farmer). (2) Lack of a common measure of value (shawls and plough). (3) Lack of a standard of deferred payment (dispute over the quality of grain repaid).
1 mark each.
(iii) · 5 marks
Explain how the four functions of money would solve the villagers' problems.
Answer
Answer: Medium of exchange: the potter could sell pots for money and buy rice. Measure of value: shawls and ploughs would have money prices, making exchange easy. Standard of deferred payment: loans could be made and repaid in money, avoiding quality disputes. Store of value: villagers could save money instead of perishable goods.
1 mark per function plus 1 for clear linking.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Legal definition of money. (2 marks) (2 marks)

Step	Marks
Declared by law as legal tender.	1
Must be accepted in payment and settlement of debts.	1

Four functions of money, primary and secondary. (5 marks) (5 marks)

Step	Marks
Medium of exchange.	1
Measure of value.	1
Standard of deferred payment.	1
Store of value.	1
Correct primary/secondary classification.	1

Where students lose marks in Money

The slips examiners see most often, and what to write instead.

Mistake: Giving the functional definition for the legal one
CISCE examiners' comments, 2024: candidates overlooked 'legal' and wrote the functional definition of money.
Do this: Legal = declared by law, legal tender, must be accepted.
Usually costs: 2 marks.
Mistake: Calling store of value a primary function
CISCE examiners' comments, 2025: candidates were not thorough with primary versus secondary functions.
Do this: Primary: MM; secondary: SS.
Usually costs: The full mark.
Mistake: Not using 'future payments'
CISCE examiners' comments, 2025: candidates did not clearly state future payments as the key term when explaining deferred payment.
Do this: Deferred = future payments such as loan repayment.
Usually costs: 1 mark.
Mistake: Listing barter problems without examples
Students write one-word points.
Do this: Add a short example to each inconvenience.
Usually costs: 1 mark per point in long answers.

Practice questions on Money

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Which of the following is a secondary function of money?
(a) Medium of exchange
(b) Measure of value
(c) Store of value
(d) Unit of account
Hint
Not MM.
Answer
(c) Store of value.
Q2 · 1 mark · MCQBoard level
Which stage of money uses UPI and mobile wallets?
(a) Commodity money
(b) Metallic money
(c) Paper money
(d) Digital money
Hint
Latest stage.
Answer
(d) Digital money.
Q3 · 2 marks · Very short answerHarder board level
What is meant by 'money is what money does'?
Hint
Functional definition.
Answer
It is the functional definition: anything that performs the functions of money, being generally accepted as a medium of exchange, measure of value, standard of deferred payment and store of value, is money.
Q4 · 2 marks · Very short answerHarder board level
Why is the medium of exchange called the most important function of money?
Hint
Removes the barter problem.
Answer
Because it removes the need for a double coincidence of wants by splitting exchange into sale and purchase, which makes trade and specialisation possible; the other functions depend on it.
Q5 · 2 marks · Very short answerBoard level
State any two inconveniences of the barter system.
Hint
Five Ds.
Answer
(1) Lack of double coincidence of wants: each party must want what the other offers. (2) Lack of a common measure of value, so exchange ratios are hard to fix (also: indivisibility of goods, difficulty in storing wealth, no standard of deferred payment).
Q6 · 5 marks · Long answerHarder board level
Trace the evolution of money in five stages.
Hint
C-M-P-B-D.
Answer
(1) Commodity money: cattle, grain, shells. (2) Metallic money: gold and silver coins. (3) Paper money: currency notes, now legal tender. (4) Bank money: demand deposits transferred by cheque. (5) Plastic and digital money: cards, net banking, UPI and e-wallets.
Q7 · 2 marks · Very short answerHOTS / competency
Distinguish between legal tender and bank money with one example each.
Hint
Must accept versus may accept.
Answer
Legal tender must be accepted by law in payment, such as RBI currency notes. Bank money, such as a cheque drawn on a demand deposit, is accepted only by choice; no one is legally bound to accept a cheque.
Q8 · 2 marks · Very short answerHOTS / competency
'Money removed the difficulties of barter but created none of its own.' Do you agree? Give one argument against.
Hint
Value of money can change.
Answer
Not fully. Money removed barter's difficulties, but its own value can fall through inflation, reducing its usefulness as a store of value and standard of deferred payment.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.What is barter?Show answer
Direct exchange of goods for goods without money.
2.What is legal tender?Show answer
Money that must by law be accepted in payment and settlement of debts.
3.Name the primary functions of money.Show answer
Medium of exchange and measure of value.
4.Name the secondary functions of money.Show answer
Standard of deferred payment and store of value.
5.What is the earliest form of money?Show answer
Commodity money.

Best order to study it

Barter: meaning, essential feature, inconveniences.
Evolution of money.
Legal and functional definitions.
Primary and secondary functions, linked to barter problems.

Quick revision checklist

The night before the exam: can you do each of these without looking?

Barter: needs double coincidence of wants.
Problems: double coincidence, measure of value, indivisibility, storing wealth, deferred payment.
Evolution: commodity, metallic, paper, bank, digital.
Legal definition: legal tender declared by law, must be accepted.
Primary: medium of exchange, measure of value. Secondary: deferred payment, store of value.

Money: frequently asked questions

Is a cheque legal tender?

No. A cheque is bank money; it can be refused. Currency notes and coins are legal tender.

Why is money called a measure of value?

Because the value of every good and service is expressed in money as a price, providing a common unit for comparison.

Do I need to know Hartley Withers' definition?

The syllabus names the legal definition. Knowing that 'money is what money does' is the functional definition helps you avoid confusing the two.

Based on: CISCE ICSE 2027 Economics syllabus; CISCE ICSE 2025 Specimen Question Paper and Marking Scheme, Economics (641)