Money is what people use to buythings and services. Money is what many people take for selling their own things or services. There are many kinds of money in the world. Most countries have their own kind of money, such as the United States dollar or the Britishpound. Money is also called many other names, like currency or cashand paisa(india).
History of money[change | change source]
The idea of bartering things is very old. A long time ago, people did not buy or sell with money. Instead, they traded one thing for another to get what they wanted or needed. One person who owned many cows could trade with another person who owned much wheat. Each would trade a little of what he had with the other. This would support the people on his farm. Other things that were easier to carry around than cows also came to be held as valuable. This gave rise to trade items such as jewelry and spices.
When people changed from trading in things like cows and wheat to using money instead, they needed things that would last a long time. They must still have a known value, and could be carried around. The first country in the world to make metal coins was called Lydia. These first appeared during the 7th century BC, in the western part of what is now Turkey. The Lydian coins were made of a weighed amount of precious metal and were stamped with a picture of a lion. This idea soon spread to Greece, the rest of the Mediterranean, and the rest of the world. Coins were all made to the same size and shape. In some parts of the world, different things have been used as money, like clam shells or blocks of salt.
Besides being easier to carry than cows, using money had many other advantages. Money is easier to divide than many trade goods. If someone own cows, and wants to trade for only "half a cow's worth" of wheat, he probably does not want to cut his cow in half. But if he sells his cow for money, and buys wheat with money, he can get exactly the amount he wants.
Cows die, and wheat rots. But money lasts longer than most trade goods. If someone sells a cow for money, he can save that money away until he needs it. He can always leave it to his children when he dies. It can last a very long time, and he can use it at any time.
Not every cow is as good as another cow. Some cows are sick and old, and others are healthy and young. Some wheat is good and other wheat is moldy or stale. So if a person trades cows for wheat, he might have a hard time arguing over how much wheat each cow is worth. However, money is standard. That means one dollar is worth the same as another dollar. It is easier to add up and count money, than to add up the value of different cows or amounts of wheat.
Later, after coins had been used for hundreds of years, paper money started out as a promise to pay in coin, much like an "I.O.U." note. The first true paper money was used in China in the 10th centuryAD. Paper money was also printed in Sweden between 1660 and 1664. Both times, it did not work well, and had to be stopped because the banks kept running out of coins to pay on the notes. MassachusettsBay Colony printed paper money in the 1690s. This time, the use became more common.
Today, most of what people think of as money is not even things you can hold. It is numbers in bank accounts, saved in computer memories. Many people still feel more comfortable using coins and paper, and do not totally trust using electronic money on a computer memory.
Kinds of money[change | change source]
Many types of money have been used at different times in history. These are:
Commodity money can be used for other purposes besides serving as a medium of exchange. We say it possesses intrinsic value, because it is useful or valuable by itself. Some examples of commodity money are cattle, silk, gold and silver. Convertible paper money is money that is convertible into gold and silver. Gold and Silver certificates are convertible paper money as they can be fully convertible into gold and silver.
Inconvertible money is money that cannot be converted into gold and silver. Notes and coins are inconvertible money. They are inconvertible and are declared by the government money. Such fiat money is a country's legal tender. Today, notes and coins are the currencies used in bank deposits.
Types of bank deposits:
More reading[change | change source]
- Ferguson, Niall (2008). The Ascent of Money: A Financial History of the World. Allen Lane. ISBN 9781846141065
- Davies, Glyn (2010). History of Money: From Ancient Times to the Present Day (Fourth ed.). University of Wales Press. ISBN 9780708317174
References[change | change source]
Other websites[change | change source]
|Wikimedia Commons has media related to Money.|
Early 6th century BC Lydian coin
US-$10,000 Certificate of Deposit, 1875
Essay on Money: Evolution, Types and Qualities!
Evolution (Development) of Money:
The introduction of money as a medium of medium of exchange was one of the greatest inventions of mankind. Before money was invented, exchange took place by barter, that is, commodities and services were directly exchanged for commodities and services.
Under the barter system buyers and sellers of commodities had to face a number of difficulties. In ancient times the drawbacks of barter caused people to use a ‘go-between’ or money, which made buying and selling much simpler. Surplus goods were exchanged for money which, in turn, was exchanged for other goods (that were needed).
Use of Commodities:
Some peculiar things were used before money came into use. Anything in common use and having intrinsic value (considered to be valuable for its own sake) served as money. For example, grain, cattle and salt were widely used as money.
However, the use of commodities as money has drawbacks. Firstly, cattle vary in size and quality. It is not easy to carry them around for the settlement of debts. Secondly, they are too large for making small purchases. Thirdly, they are not durable assets because their value is reduced sooner or later by disease, age and death.
Use of Precious Metals:
In view of the above disadvantages, metals—gold and silver —came into use as money. They did not suffer from any of the disadvantages of commodities. Moreover, both were easily worked into manageable small pieces that would serve for everyday dealings. Coins were the natural next stage in the evolution of money.
It is widely believed that Greeks were the first people to make coins, that is, standard units which could be easily counted. In old societies coins were worth what they weighed. For example, a silver coin which contained 10 oz. of silver was worth the current market value of 10 oz. of the metal. Thus money had an intrinsic value as metal.
Paper Currency (or Currency Notes):
The first paper money was the bank note developed by the goldsmith bankers in the second half of the 17th century. Its significance lay in the fact that its value depended not on its intrinsic worth as paper but on the credit of the banker who issued it.
As soon as paper currency became widely acceptable there was no need to maintain a coinage of intrinsic value. Gold coins were used for quite some time, but, for various reasons, went out of use in 1914. However, silver coins were minted from an alloy called cupro-nickel.
Thus the currency, both notes and coins, is now entirely a token one. The implication is simple the paper or metal is not worth the value printed or stamped. Each has a face falue, i.e., value which is written on the face of a coin or currency note. This face value is likely to be quite different from its intrinsic value.
The final stage in the development of money has been the use of bank deposits as money. For a long time cheques have taken place of notes and coins for the major proportion of commercial transactions. A cheque is basically a short-term credit instrument. In the strict sense of the term, a cheque is not money. But an individual’s deposit in a commercial bank is no doubt money. A cheque is just a written instruction.
A cheque is simply an order from the owner of a bank deposit to a banker to transfer a stated sum to a person named on the cheque. The banker carries out this instruction by reducing the deposit of the drawer and crediting the account of the payee.
Thus the five main stages in the historical development of money have been as follows:
(a) Commodities which are generally acceptable
(b) Precious metals
(c) Predetermined weights of metal in the form of coins
(d) Paper money or bank notes and
(e) Bank deposits transferable by cheques.
Some usual type of money that have been used at different times and in different places are shown in Table 19.1.
What Money Is?
It is often said the money is what money does. This expression means that anything which performs the functions of money — viz., medium of exchange, a unit of account standard of deferred payments and a store of value — can be called money. If a note printed on paper performs all these functions, it must be called money.
As noted earlier many different commodities over the years and in different societies have been recognised as money. Such objects are shells, sharks’ teeth, cattle, salt and, of course, gold and silver. They all have at least one thing in common. When they were used as money they were generally accepted, that is most people in that society would accept them in payment for goods and services.
It must be noted that the thing which performs the functions of money must be acceptable by everybody. If it is not so accepted it cannot be called money. In modern times, the laws of a country prescribe what kinds of coins or notes must be accepted by the people in repayment of debts.
Such coins and notes are called legal tender money. Today our cash — the notes and coins — have no value in themselves. They are almost worthless but, by law, people must accept them in payment for goods and services because they are legal tender.
Legal tender is any means of payment which must be accepted by law in settlement of a debt. In our country the Reserve Bank of India notes and coins are legal tender. Anyone selling goods and services must accept these notes and coins in payment.
In India, one- rupee currency notes and coins as well as the small coins are legal tender up to certain amounts. Hence they are called limited legal tender. But currency notes of higher denominations are unlimited legal tender.
Thus, money can be defined in the following way:
Whatever is generally accepted as a medium of exchange and for the repayment of debts can be called money. Accounts are kept in terms of such money. Savings are also kept by the people in the form of such money.
We accept notes simply because they are recognised by law (as legal tender) and we know that they are similarly accepted by all other people throughout the country. In the same way, we accept coins, manufactured by the Mint, at a face value (stamped on them) far greater than their intrinsic value (in metal).
Types of Money:
The money now used in India and most other countries consists of currency notes and coins in circulation with the public and bank deposits.
1. Notes and Coins:
Notes are printed by the Reserve Bank of India. Coins are manufactured by the Mint. Both notes and coins are known as token money because the material in them is worth far less than the value stated on them. The quantities issued are controlled by the R.B.I. and adjusted from time to time according to the needs of the community.
R.B.I, notes and coins are legal tender— that is, money which the law requires people throughout the country to accept as a means of payment. Thus, a shopkeeper may refuse a cheque but cannot refuse notes in payment for goods on display. Coins are legal tender up to limited amounts. Larger amounts of small change may, of course, be accepted but the law gives the right to refuse. R.B.I, notes are unlimited legal tender and must be accepted in any quantities.
2. Bank Deposits:
Though not legal tender, cheques based on bank deposits are accepted throughout the community as the normal means of making large payments. Bank deposits, therefore, come within the definition of money. A narrow definition excludes deposit accounts which cannot be transferred by cheque but the more widely used definition includes both current and deposit accounts.
In defining money, a distinction must be made between bank deposits or accounts and the cheques drawn upon them. A cheque is an instruction to a bank to pay a stated sum of money out of a deposit in cash or transfer it into the deposit of another person named on the cheque. The cheque itself is not money but represents a sum of money in a bank deposit and is a means by which ownership of that money is transferred from one depositor to another.
In an advanced society with a developed banking system, bank deposits are the main form of money. They are convenient to hold arid, through cheques, can be easily and safely transferred in quantities of any size. For example, they avoid the expense and risk of robbery involved in large movements of notes. The advantage of making wage payments by cheque explains why many large firms encourage their employees to hold bank accounts.
It is common practice for a cheque to be crossed (with two parallel lines at the top left corner) requiring it to be paid into a bank account and not cashed directly over the counter.
Qualities of Money:
In order to carry out the functions outlined above, whatever serves as money must possess certain qualities?
These are the following:
Money must be portable or easily carried about. It would be very difficult to use anything large and bulky as money.
Money must be able to be divided into smaller amounts to enable small purchases to take place. The use of large goods or animals would not facilitate divisibility.
Money must be accepted as having some value. Labour must accept money in payment for services provided, and retailers must accept money as payment for their goods.
Money must last a long time. It must not die, wither away or be easily defaced. Anything which is alive or perishable would not be a very good form of money.
Money must be limited in supply to have any value. If money grew on trees then it would cease to have any value.
The value of money should not fluctuate wildly.
The commodities used as ‘go-between’ in early times (for example cowrie shells) were unable to satisfy these requirements. Shells vary in size; they are easily damaged; large payments require much counting and carrying; and they are too easy to find. Other commodities have similar drawbacks.
The precious metals, silver and gold, possessed the necessary qualities and so they superseded other things as money.
(a) acceptable to people in many countries;
(b) easily stored;
(c) capable of division into small units (such as Re. 1.50 p., 20 p., 10 p., etc.)
(d) Easy to carry about;
(e) limited in supply (or scarce) when they were coined,
(f) all the pieces were the same or uniform (e.g. each 50 p. coin should be the same as any other 50 p. coin). Even today, gold still serves as the international standard of value. In fact, acceptability is the only essential requirement for a particular item to be used as money.