Definition

Money is a particular type of asset in an economy that people use to buy

goods and services from other people or businesses. A medium of
exchange is something that buyers will exchange with a seller when they
want to purchase goods or services from the seller. While many things
could be used as a medium of exchange in an economy, money is the most
common and useful medium of exchange in our society.
Function
Money actually serves several different key functions in our economy. It is a
medium of exchange, a unit of account, and a store of value. In this lesson,
we're focusing on the particular role money plays as a medium of exchange
in the marketplace.
Money helps to facilitate trade because people in the economy generally
recognize it as valuable. Since most people recognize money as valuable,
they are willing to trade money for goods and services with the intention of
one day using the money they received as a seller to buy goods or services
from someone else. If people stop recognizing money as valuable, then it
will cease to be a good medium of exchange because people will not be
willing to trade goods or service for it.
DEFINITION OF 'MEDIUM OF EXCHANGE'
An intermediary instrument used to facilitate the sale, purchase or trade of
goods between parties. In modern economies the medium of exchange is
currency.

INVESTOPEDIA EXPLAINS 'MEDIUM OF EXCHANGE'

The use of a medium of exchange allows for greater efficiency in the
economy and creates more trade in the economy. In a traditional barter
system, trade between two parties could only occur if one had and wanted
what the other party had and wanted, and vice versa. But the chances of
this occurring at the same time are minimal. Let's say one party had a cow
and the other had a lawn mower: with a medium of exchange such as gold
coins, all the cow owner would have to do is find a buyer for the cow and
she would receive gold coins. Then all she would have to do is find
someone selling a lawn mower, which she could purchase with gold coins.

LEGAL TENDER
Denomination of a country's currency that, by law, must be accepted as a
medium for commercial exchange and payment for a money debt. While
usually all denominations of the circulating paper money are legal tenders,
the denomination and amount in coins acceptable as legal tender varies
from country to country. Checks and postal orders are not legal tenders and
are accepted only at the option of the creditor, lender, or seller. Also called
lawful money.

DEFINITION of 'Legal Tender'

Any official medium of payment recognized by law that can be used to
extinguish a public or private debt, or meet a financial obligation. The
national currency is legal tender in practically every country. A creditor is
obligated to accept legal tender toward repayment of a debt. Legal tender
can only be issued by the national body that is authorized to do so, such as
the U.S. Treasury in the United States and the Royal Canadian Mint in
Canada.

INVESTOPEDIA EXPLAINS 'Legal Tender'

Widely accepted currencies such as the U.S. dollar and euro are accepted
as legal tender in many nations, especially those where foreign currencies
are in short supply. Countries with extensive business and cultural ties may
also accept each other's currencies as legal tender in limited amounts. For
example, some U.S. and Canadian merchants located close to the U.S.-

Canada border accept both Canadian dollars and U.S. dollars as payment
for goods and services.

The popularity of cross-border and online shopping is increasing demand

for more forms of legal tender; however, given official objection to such
alternatives, these may still be some years away. In May 2013, the governor
of Arizona vetoed a bill that would have made gold and silver coins legal
tender in the state, in addition to existing U.S. currency. Bitcoin, another
popular payment alternative, is a virtual online currency that can be used
for a growing number of transactions but is not considered legal tender.
Legal tender is the currency which has been made suitable by law for the
purpose of tender of payment of debts. Section 52 of Republic Act. No.
7653, otherwise known as the New Central Bank Act, defines a legal tender
as all notes and coins issued by the Bangko Sentral that are guaranteed by
the Republic of the Philippines.
SECTION 52. Legal Tender Power. All notes and coins issued by the
Bangko Sentral shall be fully guaranteed by the Government of the
Republic of the Philippines and shall be legal tender in the Philippines for
all debts, both public and private: Provided, however, That, unless
otherwise fixed by the Monetary Board, coins shall be legal tender in
amounts not exceeding Fifty pesos (P50.00) for denominations of Twentyfive centavos and above, and in amounts not exceeding Twenty pesos
(P20.00) for denominations of Ten centavos or less.
REPUBLIC ACT NO. 8183

AN ACT REPEALING REPUBLIC ACT NUMBERED FIVE HUNDRED

TWENTY-NINE AS AMENDED, ENTITLED "AN ACT TO ASSURE THE
UNIFORM VALUE OF PHILIPPINE COIN AND CURRENCY."
Section 1. All monetary obligations shall be settled in the Philippine
currency which is legal tender in the Philippines.

The Barter System

Before there was money, there was barter. In barter, people exchange
goods and service directly in exchange of goods and service offered by
others. An individual possessing a material object of value, such as an
animal, a measure of grain or farmed produce, could exchange that object
for another object perceived to have equivalent value.
In ancient history, all forms of goods were used in barter. Items include
amber, beads, eggs, chicken, corn, rice, hoes, ivory, leather, pigs and even
oxen. The list goes on.
However, barter was a rather cumbersome form of trade and ineffective
way to exchange goods and services. The capacity to carry out ideal
transactions is severely hampered and restricted since it is dependent on a
coincidence of wants from both parties.
The person who has a chicken to barter for some beads may not find a
person with the beads who is looking for a chicken.
There is no common medium of exchange in which tradable commodities
can be converted into or a standardized system of value applied to those
commodities.
Imagine getting paid in chickens, pigs or oxen today. Try exchanging the
pigs or the ox for a train ticket home or food at the supermarket. It would be
utter chaos but I suspect very entertaining to watch.
As civilization grows, the barter system became too clumsy and was
discarded in favor of other forms of currency.
What is a Barter System?

A barter system is an old method of exchange. Th is system has been used

for centuries and long before money was invented. People exchanged
services and goods for other services and goods in return. Today, bartering
has made a comeback using techniques that are more sophisticated to aid
in trading; for instance, the Internet. In ancient times, this system involved
people in the same area, however today bartering is global. The value of
bartering items can be negotiated with the other party. Bartering doesn't
involve money which is one of the advantages. You can buy items by
exchanging an item you have but no longer want or need. Generally, trading
in this manner is done through Online auctions and swap markets.

History of Bartering
The history of bartering dates all the way back to 6000 BC. Introduced by
Mesopotamia tribes, bartering was adopted by Phoenicians. Phoenicians
bartered goods to those located in various other cities across oceans.
Babylonian's also developed an improved bartering system. Goods were
exchanged for food, tea, weapons, and spices. At times, human skulls were
used as well. Salt was another popular item exchanged. Salt was so
valuable that Roman soldiers' salaries were paid with it. In the Middle Ages,
Europeans traveled around the globe to barter crafts and furs in exchange
for silks and perfumes. Colonial Americans exchanged musket balls, deer
skins, and wheat. When money was invented, bartering did not end, it
become more organized.
Due to lack of money, bartering became popular in the 1930s during the
Great Depression. It was used to obtain food and various other services. It
was done through groups or between people who acted similar to banks. If

any items were sold, the owner would receive credit and the buyer's
account would be debited.

Eons ago, before money was created to serve as a medium of exchange,

humans traded goods by bartering for products of similar value. Bartering
was inherently inconvenient because live products such as animals could
not be divided into smaller portions so they could more easily be
exchanged. Moreover, many products differed in quality, and buyers and
sellers differed in their assessments of value and in their requirements.
To facilitate product sales, several mutually-agreed commodities came into
use as mediums for exchange. Over time, these commodities changed
according to perceptions of social value. For example, such diverse items
as cattle, beads, salt, shells, feathers, tomahawks, arrowheads, leather,
whale teeth, decorations, and base metals have at one time or another
been regarded as common currencies.
Ultimately, silver and gold came to be universally perceived as the most
practical common currencies. In addition to being rare and durable, they
could be divided into smaller units without losing their original properties.
They were convenient to carry and could also be melted into larger blocks.
Often exquisitely decorated, these two metals have been popular mediums
of exchange since pre-history.
Money has evolved through different stages according to the time,
place and circumstances.
(i) Commodity Money:
In the earliest period of human civilization, any commodity that was
generally demanded and chosen by common consent was used as money.

Goods like furs, skins, salt, rice, wheat, utensils, weapons etc. were
commonly used as money. Such exchange of goods for goods was known
as Barter Exchange.

(ii) Metallic Money:

With progress of human civilization, commodity money changed into
metallic money. Metals like gold, silver, copper, etc. were used as they
could be easily handled and their quantity can be easily ascertained. It was
the main form of money throughout the major portion of recorded history.

(iii) Paper Money:

It was found inconvenient as well as dangerous to carry gold and silver
coins from place to place. So, invention of paper money marked a very
important stage in the development of money. Paper money is regulated
and controlled by Central bank of the country (RBI in India). At present, a
very large part of money consists mainly of currency notes or paper money
issued by the central bank.

(iv) Credit Money:

Emergence of credit money took place almost side by side with that of
paper money. People keep a part of their cash as deposits with banks,
which they can withdraw at their convenience through cheques. The
cheque (known as credit money or bank money), itself, is not money, but it
performs the same functions as money.

(v) Plastic Money:

The latest type of money is plastic money in the form of Credit cards and
Debit cards. They aim at removing the need for carrying cash to make
transactions.

Symbolic Proto-Money
Early in pre-history, people made a fundamental shift in what they chose to
use for proto-money. Some items, such as arrowheads, salt and animal
hides, were useful in and of themselves. Gradually, however, people began
exchanging items that had no intrinsic value, but which had only agreedupon or symbolic value. An example is the cowrie shell. Cowrie shells are
found on an island off the coast of India. They have been widely used as
currency in China, India, Thailand and in West Africa (even as late as into
the 1930s)

Commodity money is money consisting of a commodity that has intrinsic

value. A commodity is a physical item that is readily interchangeable with
another item of the same type. Intrinsic value means that the commodity
has value even if it is not used as money. In times of economic turmoil,
such as severe economic depressions or hyperinflation, people sometimes
turn to commodity money instead of the money authorized by their
governments.
Examples
Commodity money has been used throughout history and is even used
today in certain circumstances. Let's take a quick look at some examples.
Precious metals and coinage. Precious metals such as silver, gold,
platinum, and copper have been used since ancient times as commodity
money. Ancient coins would be made of gold or silver or other metals.
Governments became involved in money and started to create struck coins
- blank coins between two dies were struck with a hammer leaving an
imprint on the coin to designate it as coinage produced by the government.

A form of currency in which the value of the currency comes from the
material of which it is made. Gold, silver, grains, livestock, salt, and other
materials have served as commodity money at different points in history.
Most modern currencies, such as the Euro or the United States Dollar, are
fiat money, or money whose value is based on government guarantees but
has no inherent value.
DEFINITION of 'Store Of Value'

Any form of commodity, asset, or money that has value and can be stored
and retrieved over time. Possessing a store of value is an underlying basis
for any economic system, as some medium is necessary for a store of
value in order for individuals to engage in the exchange of goods and
services. As long as a currency is relatively stable in its value, money (such
as a dollar bill) is the most common and efficient store of value found in an
economy.

A:
Fiat money is physical money (paper money and coins), while
representative money is something that represents intent to pay the
money such as a check. Fiat money is backed by the government, and
representative money can be backed by different things. For example, a
personal check is backed by the money in a bank account. Without
backing, both fiat money and representative money are completely
worthless.

Today, most representative money is something backed by fiat money. In

the past, the money produced by a government was considered
representative money. For every quantity of money printed, there was
enough gold or silver to back it. A person could actually go and exchange
the money directly for gold. However, many governments fall to the lure of
printing too much paper money, which leads to inflation. A dollar is no
longer worth a dollar in gold. When this happens, the money becomes fiat
money.
Something that is not in the physical form of currency, but represents the
intent to pay money. A paper check from a banking institution is an example
of representative money. The check is not a physical piece of money, but it
implies the intent to repay.

Representative money is an item such as a token or piece of paper that

has no intrinsic value, but can be exchanged on demand for a commodity
that does have intrinsic value, such as gold, silver, copper, and even

tobacco. An item has intrinsic value if it still has value even if it is not used
as money.

DEFINITION OF 'FIAT MONEY'

Currency that a government has declared to be legal tender, but is not
backed by a physical commodity. The value of fiat money is derived from
the relationship between supply and demand rather than the value of the
material that the money is made of. Historically, most currencies were
based on physical commodities such as gold or silver, but fiat money is
based solely on faith. Fiat is the Latin word for "it shall be".
Money which has no intrinsic value and cannot be redeemed for specie or
any commodity, but is made legal tender through government decree. All
modern paper currencies are fiat money, as are most modern coins. The
value of fiat money depends on the strength of the issuing country's
economy. Inflation results when a government issues too much fiat money.

Back in the Old Days

Long before the country we live in was known as the Philippines, people
were already exchanging goods and services with each other and people
from neighboring areas. They did so through barter trade, which means
that for instance someone would trade a cow or chicken directly for
someone elses knife or hammer. The impracticality of this barter trading
led people to assign certain set values to mediums of exchange. As gold
was plentiful in the Philippines at the time and relatively easy to turn into
desired shapes, bead-and-ring-shaped pieces of gold quickly became the
method of payment, effectively functioning as coins.
When the Spanish Entered the Philippines And left
With the Spanish entered the country in 1521, their silver coin the teston
became the main Filipino currency, serving as the most important method
of trade between the Spanish and Filipinos. During the Spanish regime, the
Philippines possessed a melting pot of currencies, which included Alfonsino
pesos and Mexican pesos, among quite a number of others. The peso
fuerte (or the strong peso) would become the dominant currency in the
later stage of the Spanish colonial period, being the first Filipino currency
issued on paper money, and being issued by the countrys first national
bank.
After reaching independence from the Spanish in 1898, the Philippines
started producing its own currencyboth coins and paper moneywhich
replaced the peso fuerte. During this time, the term centavo was
introduced to name the subdivision of peso coins into cents. After 1901,
when the Americans started to take control of the Philippines, this
revolutionary peso was yet again replaced.

Towards the Current-Day Peso

In the early 1900s, the Americans introduced a monetary system based on
gold: the gold peso. They pegged the gold peso to the American dollar at
exactly half of its value, and the currency maintained its purchasing power
up until 1949. From that moment on, the peso found itself in stormy times.
In an act of desperation, the peso got turned into a floating currency in
1964, meaning that its value became a reflection of peoples perception of
its stability.
In 1967, the language on all types of peso money got changed to Tagalog.
Although in everyday writing the spelling of peso still reigns supreme, peso
bills since the 1960s display the word piso. Likewise, though coins since
that time display the word sentimo, centavo remains of course the more
commonly used term. Still, with this act of localization, the Philippine peso
has been brought a step closer to our national identity. We will see what the
future brings us with regards to developments around the peso.
History of Philippine Money
Philippine moneymulti-colored threads woven into the fabric of our social,
political and economic life. From its early bead-like form to the paper notes
and coins that we know today, our money has been a constant reminder of
our journey through centuries as a people relating with one another and
with other peoples of the world.

Pre-Hispanic Era
Trade among the early Filipinos and with traders from the neighboring

islands was conducted through barter. The inconvenience of barter later led
to the use of some objects as medium of exchange. Gold, which was
plentiful in many parts of the islands, invariably found its way into these
objects that included the piloncitos, small bead-likeb gold bits considered
by the local numismatists as the earliest coin of the ancient Filipinos, and
gold barter rings.

Spanish Era (1521-1897)

Three hundred years of Spanish rule left many indelible imprints on
Philippine numismatics. At the end of the Spanish regime, Philippine money
was a multiplicity of currencies that included Mexican pesos, Alfonsino
pesos and copper coins of other currencies.
The cobs or macuquinas of colonial mints were the earliest coins brought in
by the galleons from Mexico and other Spanish colonies. The silver dos
mundos or pillar dollar is considered one of the worlds most beautiful
coins. The barilla, a crude bronze or copper coin worth about one centavo,
was the first coin struck in the country.
Coins from other Spanish colonies also reached the Philippines and were
counterstamped. Gold coins with the portrait of Queen Isabela were minted
in Manila. Silver pesos with the profile of young Alfonso XIII were the last
coins minted in Spain. The pesos fuertes, issued by the countrys first bank,
the El Banco Espanol Filipino de Isabel II, were the first paper money
circulated in the country.

Revolutionary Period (1898-1899)

Asserting its independence, the Philippine Republic of 1898 under General

Emilio Aguinaldo issued its own coins and paper currency backed by the
countrys natural resources.
One peso and five peso notes printed as Republika Filipina Papel Moneda
de Un Peso and Cinco Pesos were freely circulated. 2 centimos de peso
copper were also issued in 1899.

The American Period (1900-1941)

The Americans instituted a monetary system for the Philippine based on
gold and pegged the Philippine peso to the American dollar at the ratio of
2:1. The US Congress approved the Coinage Act for the Philippines in
1903.

The coins issued under the system bore the designs of Filipino engraver
and artist, Melecio Figueroa. Coins in denomination of one-half centavo to
one peso were minted. The renaming of El Banco Espanol Filipino to Bank
of the Philippine Islands in 1912 paved the way for the use of English from
Spanish in all notes and coins issued up to 1933. Beginning May 1918,
treasury certificates replaced the silver certificates series, and a one-peso
note was added.

The Japanese Occupation (1942-1945)

The outbreak of World War II caused serious disturbances in the Philippine
monetary system. Two kinds of notes circulated in the country during this

period. The Japanese Occupation Forces issued war notes in big

denominations. Provinces and municipalities, on the other hand, issued
their own guerrilla notes or resistance currencies, most of which were
sanctioned by the Philippine government in-exile, and partially redeemed
after the war.

The Philippine Republic

A nation in command of its destiny is the message reflected in the evolution
of Philippine money under the Philippine Republic. Having gained
independence from the United States following the end of World War II, the
country used as currency old treasury certificates overprinted with the word
Victory.
With the establishment of the Central Bank of the Philippines in 1949, the
first currencies issued were the English series notes printed by the Thomas
de la Rue & Co., Ltd. in England and the coins minted at the US Bureau of
Mint. The Filipinazation of the Republic coins and paper money began in
the late 60s and is carried through to the present. In the 70s, the Ang
Bagong Lipunan (ABL) series notes were circulated, which were printed at
the Security Printing Plant starting 1978. A new wave of change swept
through the Philippine coinage system with the flora and fauna coins initially
issued in 1983. These series featured national heroes and species of flora
and fauna. The new design series of banknotes issued in 1985 replaced
the ABL series. Ten years later, a new set of coins and notes were issued
carrying the logo of the Bangko Sentral ng Pilipinas.