HISTORY OF MONEY
PAPER MONEY
1. EARLY MONEY
-In small communities ,they have
remembered the payments and receipts of
what have been exchanged
TABS/TALLY – used to record who being
paid/and who still owed
As community grows-exchanges become
numerous ,So they implemented TAX
COLLECTION
Early people used I owe you /IOU notes –
but its hard to verify ,so they used object
like
Whales teeth- as aform of trade from
anyone.
“As humans invented MONEY ,they also
invented DEBT”
2. METAL MONEY
-People encounter problems with the
current barter system .
-Barley was heavy to carry, not durable or
portable (Best Before 900 BC)
Whales teeth a s a form of exchange for
goods- hard to split by two. –not easily
divisible
Shells- it is easily to pick up at any beach –
not valuable/ scattered everywhere
Feathers hard to trade to other community .
-So then ,the idea was from a King “Having
lots of money , means being powerful , and
power means you can have more of it (more
money) greedy King
-The king hints the idea of minting
coins,from precious metals,and stamped w/
his emblem –to gurantee the value. The
coin has intrinsic value,so it can be used for
trade to any communities. Because of the
success of the metal money ,it brought to
temptation, to produce more coins --- so the
King ordered to slim the coins and used
cheap metal based for making metal
money.
Characteristics of money in early years---
Legitimized by the Ruler/King , Hard to
forge/Durable /Portable and Divisible
3.
-carrying around large quantities of
coins/money could be exhausting work
It was early Chinese Rulers, that hit on the
idea of keeping the heavy coins back in the
palace.
They start issued I OWE YOU cert. on
paper for long distance trading , Although
the paper had no intrinsic value, people
trusted that its worth what it said it was
worth, and they could always exchange it
for gold or silver.
As Global trade groups, the idea Paper
Money goes on- But traders and lenders
were concerned that it was a bit too easy to
print money.
So they tried to linked the value of money
for the value of gold ,w/c have a benefit for
a standard for exchange between different
currencies.
Then the used of paper moneys ,continues
for centuries,But the needs for flexible
exchange rates prevail , So In early 1970’s
,people stop for the idea of gold standards.
4. CONTROLLING MONEY
Long ago in 500 AD In the Pacific Island , or
so called “ Island of Yap , they are using
stone money , that was known for “Rai
Stone” nearest thing for gold was the,Rai
stone noticeable for enormous size and
weight.
The chief decided to ask for their taxes and
rai stone.The currencies become universal
unavoidable,and under the control of the
chief.
The most valuable stone were so heavy ,so
people in the Island leave the Rai Stone in
one place. and trade effectively w/ promises
or the use of promissory note./promised to
pay.
Any trader , who own a Rai Stone ,could
issue a promissory note against the value of
the stone.
And thus- banking was born ,And
Once the chief of the Island --- accepts this
promissory note,instead of Rai Stone for
their taxes they effectively loose control on
the amount of money in circulation ,”The
money supply “
In 20 th century ,Some economist argues at
the amount of money circulation
directly affects the economic performance
and its important for the government to tried
to control, and It wont be easy most
especially If private lenders creates most of
it .
5. MONEY AND INFLATION
In the 16th century in Spain,travelers
brought home additional supply of precious
metals from the columnist ,
But what seem like a dream come true,
turns sour when traders simply turns the
price of the goods to match this new
purchasing power.
So returning the explorers ,where no better
off, And those without the new gold were
even worse off. And those who have debts,
is better off.
Too much money ,chasing too few goods
can cause inflation, Unless traders produce
more goods,or unless bigger money supply
,circulates less rapidly , by people saving
more or gloomy about the future .
6.INTERNATIONAL MONEY
In the 18th century, The British forced their
columnist in America, to pay their taxes in
pounds And they make it illegal for the
British Coulmnist to print their own
money,this meant The British columnist
were forced to trade with the motherland ,to
access the currency .
Accdg to Benjamin Franklin , The American
war independence was cause by the
shared burden of the British taxation and
the disadvantageous trade needed to
access British pound,
And the hard one freedom after the war
Allow the Americans , to create the
American Dollar
Which because of the countries vast trade
and trustworthy tax based, eventually
became the most widely used currency on
the planet. Leading many countries
inclusing Britain to store large reserves of
dollars.The UK
7. MONEY AND BUILDING BANKS.
By the 19th century banking had become a
thoroughly respectable business---------
Making a profit by basic money lending,
banks paid a lower rates of interest with the
money they took in that they charged on
money they loan out, But the bank soon
realized ,that as long as depositors,didn’t
get their money at once.
They could in fact lend out many times more
money than they have on deposits/ this is
known as “Fractional Rerserve Banking .
On rare occasssions when depositors all
tried to get their deposits or money out at
once, There was a run on the bank .
-And the effect on a wider economy was so
serious,that government started to ensure
customers deposits,to prevent it from
happening .
-And thereby enabling bank to loan out
more and more.By the 21 st century some
bank had taken fractional reserve banking
to a whole new level, Funding most of their
loans not from cash deposits from savers
but w/ loans from other banks often secured
against bundles of previous loans.
So when there was a run on the bank ,in
2007,banks is like northern rock, not only
did have not enough money to pay out but
the effect is way beyond just one bank.
8.MONEY AND SAVING THE BANKS
-To understand how gov’t. try to prevent
global financial melt down on 2008,
Economist distinguished between two kinds
of money . Money created by banks, inside
the banking system, and Money created by
the government ,outside the banking
system.
-When a bank creates money by making a
new loan ,the bank acquires a new private
asset to the loan w/ an equivalent private
liability to the borrower to pay it (This is
money created inside the banking sytem )
-Gov’t can create money by selling new
bonds,these bonds is going to circulation,as
new private asset ,but theres no equivalent
to private liability to pay them,Instead this
outside money is added to the public debt .
- Those normal a very small percentage ,of
total money in the economy,it was this
outside money ,that was used to buy a
banks bad private debts and write them
off.The private sector retain its wealth with
new assets inside the system supposedly
government if public debt from outside the
system .
9. THE POWER OF MONEY
Since the last traces of a Gold standard
disappeared in 1973,The world has carried
on trading ,in Us Dollars even though these
was not armed backed with anything of
intrinsic worth.
The US government decisions to borrowed
billions for its bank rescue and stimulus
plan,
Dramatic increase in the supply of dollars
And some predicted that this will lead to a
big fall in the dollars value, on the basis that
the Economist w/c print money ,so they
consume more than they produced--- will
suffer from price inflation and exchange rate
depreciation.
In 6 yrs on ,it still hasn’t happened
Why then does the dollar retain its value?
After so much of the world, holding its
wealth in the US dollar assets, people
simply have faith that the dollar will retain its
value, and the knowledge that so many
others shared that faith—reinforces the
general optimism that the dollar will stay
strong.
10. FUTURE MONEY –
-Minted coins and paper money, once the
cutting edge of technology (and now used
in only 2% of the transactions)
… credit card and electronic banking
technology has enable massive global
transactions to take place in a fraction of a
second//
And digital technology ---is enabling new
curriencies to be created.
(Lindon Dollars Bitcoins, and other Krypto
currencies w/c exhibit the enduring
charactersistics of money being hard to
forge, durable,portable ,divisible, and limited
in supply and w/c may even challenge the
power of government pack of money.
But instead of government accepts of taxes
,Bitcoin ,or other privately issued
currencies.
Banks stop lending in them .There are not
much difference from any other tokens
One sign that a new form of money has
becoming important ,when the govt and
banks trying to control it , And if govt and
banks continue to have the power to control
money ,those who used it ,will always
wonder to what purpose will they put to that
power.
https://www.youtube.com/watch?v=3CY2o
WCEiUA
to be downloaded
Introduction
IMPORTANCE OF MONEY
Money is the essential monetary transaction
that people use every day. Without Money,
there will be no marketing and economy in
human kind. Money acts as a fundamental
medium of exchange which clears up both
humanity’s past and present obligations.
Economists define money as widely
accepted by society and acts as payments
for goods and services.
Money is an essential commodity that
helps you run your life. Exchanging
goods for goods is an older practice and
without any money, you cannot buy
anything you wish. Money has gained its
value because people are trying to save
wealth for their future needs.
Philosophically speaking, money cannot
buy everything but practically money is
the basic thing that is used for
calculating the status of any person.
Functions of Money
As a general rule, economists have finalized
and defined all the four types of functions of
money which are medium of exchange,
measurement of value, standard of
deferred payments and lastly store of
value.
1.As for Medium of Exchange, ever since it
being introduced into the economic society,
money has been fulfilling its duty to act as
an essential function which is medium of
exchange in the society. Money facilitates
well as our monetary transactions to
purchase and own both tangible and
intangible goods and services as a medium
of exchange.
As manufacturers sell their productions to
the wholesalers or retailers in exchange of
money as an earning. While wholesalers
and retailers sell the same finalized goods
to the final consumers in exchange of
money as their own earning.
Similarly, all service providers of the society
sell their services in exchange of money as
their earning. Then, all these sections of the
economic society which are manufacturers,
wholesalers, retailers and service sellers
such as doctors, lawyers and more will then
use the earnings which they have made to
consume on other goods and services
which they need or want. (Harcourt, 2013)
Without the existence of money, every
transaction of money for goods and
services may have to be conducted by
barter trading, which engages direct and
absolute exchange of one good or
service to own or use another. The only
obstacle which barter system always faces
is when in order to obtain a specific good or
service from a seller, one has to be able to
provide another good or service which
consist of equal value with the good and
service they want to possess, which the
seller desires to obtain. (Harcourt, 2013)
2.Furthermore, as a Measurement of
Value, it measures provides the fixed value
of all kinds of goods and services which are
manufactured and produced in the
economy. Money performs as unit of value
and acts as the standard of value of all
goods and services. In barter trading, it is
very burdensome and challenging to
measure and decide the quantity or volume
of goods to be exchanged for another given
quantity of goods. Having the knowledge of
the average value of a good assists both the
seller and purchaser to make decisions
about the quantity and volume of goods to
be exchanged. (Bullard, 2013)
3.Moreover, as for Standard of Deferred
Payments money is able to act as a
monetary transaction to be used to pay both
before or over time for other goods. This
means that goods and services can be paid
for installments over a period of time such
as hire purchase. Unlike barter trade,
transactions do not need to be settled at a
lump sum at a time.
Money, besides acting as a monetary
support of current transactions, it also acts
as the monetary support of deferred
payments which is future payments, loan
repayments acts as an example for deferred
payments.
4.Money must hold its value over time; it
must act a Store of Value. As before, goods
were beyond possible to store its surplus
value under barter economy. After the
creation of money, the following issue has
been solved efficiently. Retailers and sellers
can now store their surplus retailing
earnings. Saving money is now secure in
value without having to worry its loss of
value Rather than spending today, you can
store it for use in the future.
Which serves as Functions of Money
The characteristics of what serves as
money depend somewhat on the degree of
complexity in the society. A relatively simple
economy, with relatively few goods and
services, few producers and consumers,
and few transactions, may be able to
function with a form of money that would not
work in a more complex society.
*There are some general characteristics
that are usually important for whatever
serves as money in a modern economy.*
First, to serve as an effective medium of
exchange and store of value, money
must be durable. Durability is when an item
is able to withstand all the hardships and is
still able to maintain to be undamaged and
usable after a long term of usage.
1.Durability is crucial for money to be able
to perform the following functions of medium
of exchange and store of value. Coins and
paper bills are made to perform and to act
as the currency. Nowadays, Money is
manufactured with the materials such as
paper, metal and plastics, which results to a
long lasting medium.
2.Portability, which also serves as a
medium of exchange, means that money
can be movable from place to place to be
used as monetary transaction to be
exchanged for goods and services.
Portability also means that consumers are
now able to carry money along with them to
be used as transactions for goods and
services. In modern days, money is carried
from one location to another without
needing much effort as all types of money
such as cash notes, coins and cards are
carried easily in a wallet.
3.Furthermore, divisibility is a
characteristic which means the money can
be divided into small units and that it can be
used in exchange for goods and services.
As to function as the medium of exchange,
as it is divisible, it can be used to purchase
all kinds of goods with different values.
As money functions as the medium of
exchange it must have denominations to
be traded for all goods and services, and
everything in between.
4.Moreover, uniformity means that all
types of the same denomination of money
must consist of purchasing power. It is a
characteristic to perform the function of
standard of deferred payments.
5.Limited supply is a characteristic which
helps in storing the value of money,
meaning that constraints on the amount of
money in the monetary circulation ensure
that values remain constant for the
currency. Currently most of the respective
country’s government has the responsibility
to control an adequate money supply based
on market with their monetary policies, such
as expansionary monetary policy and
contractionary monetary policy.
6.Acceptability supports the function of
medium of exchange. The essential quality
of money is that it must act as an item being
acceptable to all, without having any
hesitation in the exchange for goods and
services. Acceptability means that everyone
must be able to accept the money for
transactions. Money is universally accepted
around the world as a universal mean for
transaction.
7.Lastly, the characteristic of non-
counterfeitability which functions as the
store of value means that money cannot be
easily duplicated. As money cannot be
easily duplicated, it prevents the
unrestricted and illegal creating of
duplication of money. Besides, preventing
the duplication of money to happen is one of
the main reasons of government existence.
COINAGE
Free coinage:
Is practiced when the owner of the metal
are given the freedom to bring the mint
any amount of such metals to be
converted into solid coin as specified by
law.
Limited coinage:
The gov`t purchase the precious metal
in the open market quantity it deems
sufficient to facilitate. Manufacture them
as medium of exchange and sells them
to the public at their fare values.
Gratuitous coinage:
System of coinage where the gov`t
manufacture coin without cost to the of
precious metal.