History of money

Money

Money is a good that acts as a medium of exchange

in transactions. It is a way for a person to trade
what he has for what he wants.
 Barter

• It is the way of exchanging goods and services

• In 9000BC people would barter goods they had in
surplus for ones they lacked
 Shells

• Coastal regions around the Indian Ocean saw the use of

cowrie shells in trade as early as 1200BC
 Coinage

• In 1100BC, Chinese people started using small replicas of

goods cast from bronze
• Largely for practical reasons these developed into rounded
“coins”
• Those coins had holes in the middle, so they could easily
carry around their neck
• In 600BC the first “official” coin was minted by king Alayttes
of Lydia (modern day Turkey)
• Greeks and Persians quickly adopted useful new technique of
metal currency
• By the end of the 6th century coinage is common throughout
the region
 Leather

• In 118BC, banknotes in the form of leather money

were used in China
• They were made out of deer skin
 Paper money

• the first known paper banknotes appeared in

China in 9th century

• The travels of Marco Polo to China introduced the

idea of paper money to Europe
 Wampum currency

• beads of polished shells strung in strands, belts,

or sashes and used by North American Indians as
money
 Gold standard

• Gold was officially made the standard of value in

England in 1816.
• “Gold standard Act” of 1900: Gold became an
official instrument of payment
 Plastic Money

• John Biggins invented “charge-it” card, the first

credit card
• In this 21st century this currency is widely being
used
 Types of money

 Commodity Money:
Whenever any commodity is used for the exchange purpose,
the commodity becomes equivalent to the money and is called
commodity money.
Ex: tea, sugar, shells, tobacco etc

 Fiat Money:
Fiat currency is the kind of money which don’t have any
intrinsic value and it can’t converted into valuable resource.
Ex: coins, paper money
 Fractional Money
It is a hybrid type of money which is partly backed by a
commodity and has a fiat money transaction purpose. If the
commodity loses its value then Fractional money converts
into Fiat money.

 Fiduciary Money
Whenever, any bank assures the customers to pay in
different types of money and when the customer can sell the
promise or transfer it to somebody else, it is called the
fiduciary money.
 Catagory of money

Narrow Money
 M0
M0 is material currency (cash itself); all notes, coins, specie
and bearer certificates convertible on demand
 M1
M1 includes M0 plus the balance of all deposit accounts
which can be instantly converted into cash of equal value
Broad Money
 M2
M2 includes M1 plus short-term time deposits in banks and
24-hour money market funds
 M3
M3 includes M2 plus longer-term time deposits and money
market funds with more than 24-hour maturity
 Characteristics of money

 Portability

 Durability

 Divisibility

 Uniformity

 Acceptability

 Limited supply
 Functions of money

 Medium of exchange

 Unit of value

 Standard of differed payments

 Store of value

 Basis of the credit system

 Equalizer of marginal utilities and productivities