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Answer) Money is one of the wonderful inventions of man. Money has no precise definition; it has
been defined differently by different economists. These definitions of money are usually classified
into three groups as below:
1. Descriptive Definitions:
Crowther in his book defines “money is anything that is generally acceptable as a mean of
exchange and at the same time acts as a measure and store of value.”
According to Cole, “money is anything that is widely use as mean of payments and is generally
acceptable in settlement of debts.”
2. Legal Definitions:
According to Professor Knap, “anything which is declared by the state as money is money.”
The direct exchange of surplus goods for another goods or services with another person without the
use of money is termed as Barter System in economics.
Although Barter still exists in economically backward and underdeveloped areas of the world, like in
villages of Pakistan barter system is still in practice to some extent. But in advanced and developed
countries, this system has given up due to its inconvenience and difficulties.
Difficulties of Barter System:
Some of the difficulties which have been faced up in barter system are as below:
1. Lack of double coincidence of wants
This is the most basic problem in barter system. It means that there must be double satisfaction of
wants by both parties willing to exchange for goods and services.
For instance, goods or services can be exchange effectively if a person is able to offer what the
other person wants and at the same time needs exactly what the other can offer.
2. Lack of common measure
In barter system, there is no common measurement for exchangeable goods. For instance, if a
person have cow and other have goat, and 1st want to exchange cow after receiving two goats,
and other is not agree from 1st because there is no common measurement of goods.
3. Lack of sub-division
As there are some commodities which cannot be sub divided. Like a person have a horse and other
want to exchange 20 Kg Rice. So, in this situation which part of horse should be given in exchange
for 20 Kgs of Rice?
4. Lack of store value
In barter system there is no facility of store value. Because there were some goods that have no
storage facility. Like vegetables, fruits, and other perishable goods, etc.
5. Specialization not possible
Under the barter system each person is a jack of all trades and master of none. A high degree of
specialization cannot be achieved under barter system.
6. Difficulty in future payment
It is very inconvenient to lend goods to other people, due to the lapse of time the value of goods
may fall. So, it becomes difficult to make payments in the future.
Answer)
Coinage of Money:
Coinage of Money is the process of manufacturing metals into certain shapes so that uniformity in
weight and size is maintained in all the coins of the same kind. Before the advent of coinage, the
metals like gold and silver were used as a medium of exchange in a very crude form such as they
were cut into small pieces or shapes for comparing and storing of values. With the passage of time,
metals were started to convert into standard coins of specified shapes and weight such as gold and
silver coins.
In the modern times, the sole power of coinage money has taken by the state government.
Types of Coinage:
The main types of coinage are:
1. Free and limited coinage
2. Gratuitous coinage and non-gratuitous
3. The debasement of coins
3. Debasement of Coins:
When there is difference of between a standard value of precious metals fixed by law and the real
value of the metal used as a coin, it is then a case of debasement.
Functions of Money:
The functions of money can be categorized as per below:
Evolution of Money:
In the earliest stage of human civilization, there was no concept of money. The families or group of
people were almost self-consumer of all goods they produced. With the passage of time, a need
was felt to exchange goods directly for goods possessed by other persons. For this, a system was
developed call “Barter System”. So, the earliest money which came into use for exchange of goods
and services was “Commodity Money”. As society developed, many other forms of money have
evolved through the following three main stages.
1. Metallic Money
2. Paper Money
3. Bank Money
1. Metallic Money:
Metallic money consists of coins made of gold, silver, copper or nickel. There are following form of
metallic money:
A) Standard Money: It represents the money of account which means the monetary unit, in term of
which, the prices, debts and other transactions are expressed.
B) Token Money: It is a subsidiary money, its face (the value printed on it) is higher than its
intrinsic value (the value of metallic contents).
C) Limited and unlimited tender: Unlimited legal tender money is one in terms of which debt can be
legally paid up of any amount. In Pakistan, for instance bank notes of Rs. 10, Rs. 50, Rs. 100 are
unlimited legal tender money. Whereas, limited legal tender money is that which a creditor can only
accept in settlement of certain limit only. In Pakistan, for instance the creditor can refuse to accept
payment of legal obligations if they are paid in small coins of Rs. 1, 2, etc.
2. Paper Money:
Paper money is referred to the notes issued by the state bank or government. They have following
forms:
A) Representative Money: It is money which is fully backed up by equivalent metallic reserve such
as gold or silver.
B) Convertible Paper Money: Paper money which is convertible into coins on demand is called
convertible paper money.
C) Fiat Paper Money: It is money which is not backed up by any equivalent metallic reserve.
3. Bank Money:
Bank money refers to that money which is not legal tender but is accepted as medium of exchange
on account of confidence on the issuing authority. It consists of following:
A) Cheque
B) Bill of Exchange
C) Draft
D) Pay order