7 What is Money?
To appreciate the role of physical items often have an
money we could try to envisage an
economy without money, this is
generally labeled a barter economy.
In such an economy, people would
be exchanging goods directly for
other goods, and for exchange
there would have to be the double
coincidence of wants. What that
means is clear from the following
example. A person with apples
who wanted pears would have to
find another person who, at the
same time had pears but wanted
apples in order to make the
exchange (and they would have to
agree on the rate of exchange
between apples and pears). There
are occasionally reports of some
direct barter between companies,
but these are relatively rare. We
may ourselves be involved in some
elements of direct barter – we may
swap something we have with
goods (or services) from our
friends and neighbours.
The overwhelming majority
of exchange transactions involve
money. We sell something (such as
our labour) for money, and then
use that money to buy something
else (such as food or clothes). In
common language the word money
is often used to denote wealth,
such as saying ‘he is loaded with
money’ ‘she left all her money to
her children’. Economists, when
they talk of money, mean that
which is widely used in the
exchange of goods and services: a
commodity or token which you
will accept when you sell
something. Through history,
physical items have served as
money, the best known example is
the use of gold and silver. These
intrinsic value themselves: gold
may be used as money and it is
also valued for its other attributes.
But in most economies (particularly
in all industrialized ones) what
serves as money has become either
a physical item with an intrinsic
value (e.g. a 5£ note) or a book
keeping entry with no physical
existence (e.g. a bank deposit). In
the UK at one time, money would
have largely taken the form of
coins (based on gold and silver)
and notes (similarly backed by
gold or silver). While use is still
made of notes and coins, these are
no longer backed by gold or silver,
and the notes or coins are of little
value in themselves. For example a
5£ note has little intrinsic value, but
is of value to any individual
because some other individual will
accept the note in exchange for
items of value. Increasingly, even
paper money is becoming
redundant as most transactions are
now financed by the exchange of
bank deposits: payment by
cheque/debit card is authorization
to a bank to reduce one person’s
bank deposit and increase
another’s. The authorization to
move funds from one bank account
to another is increasingly taking
the form of electronic transfer.
These recent forms of money
are financial assets so far as the
holder of the money is concerned,
but for the body that has issued the
financial asset it represents a
financial liability. Notes and coins
issued by the central bank (on
behalf of the government)
represent a liability (they are part
of the national debt). Bank
deposits, in a similar way, are
assets for the public but are
liabilities for the banks. A
characteristic of money is that it is a
financial asset. But the financial
assets which are used as money
also have the property of being
transferable from one person to
another and are widely accepted as
a means of payment.
The changing forms of
money suggest that we need to
define money in terms of its
characteristic functions rather than
by the commodity that happens to
be money today. Defining money
in terms of its functions recognizes
that the physical form money can
take varies. Thus the commonly
accepted definition of money is
that it is any commodity that
performs the following functions in
the economy. The first is that it is a
unit of account. That is, prices,
wages, rent, etc. are measured in
terms of the units of money; in the
UK in terms of pounds, in most of
the European Union in terms of
euros, in the USA in terms of
dollars, etc. Contracts will
generally be specified in terms of
this unit of account. Further, these
financial assets have a fixed
nominal price: the price of money
in terms of itself can always be
thought of as 1. Other financial
assets (e.g. shares and bonds) have
prices which vary and cannot be
regarded as money.
The second function is that
money is a generally accepted
means of payment. When we wish to
acquire some good or service the
person selling the item will
generally accept money and we
will usually expect to offer money
for the purchase of the item. There
may be exceptions: we may, for
example, directly exchange goods
and services with our neighbours
without any money being
involved. Money facilitates
exchange and it is often referred to
as a medium of exchange. However,
the term means of payment is used
here as money is also used to settle
debts, notably tax obligations to the
state, which do not arise from
exchange.
A third function of money is
that it serves as a store of value. This
means that at minimum money
should retain its value between the
time of receipt to the time of
disbursement. As individuals, we
may well receive our income in the
form of money once a month or
once a week and gradually spend
the money during the course of the
month or week. We would be
unwilling to accept money if it was
to lose a significant part of its
purchasing power before its actual
use to purchase items. In times of
high levels of inflation, money does
lose value quickly (in terms of the
goods and services which it can
buy) and hence it performs less
well its function as a store of value.
More generally, the store of value
function implies money is a
significant form in which
individuals hold part of their
wealth.
(slightly adapted from
Macroeconomics)
7.1. THEORETICAL CONCEPTS EXPLAINED

 broad money = the amount of money in a country's economy, measured by

counting money kept by banks and people. In addition to serving as a
medium of exchange, broad money includes assets that are slightly less
liquid than narrow money and the assets tend to function as a "store of
value" - a means of holding wealth. (masa monetară)
 budget balance = a balanced budget is when there is neither a budget deficit
or a budget surplus – when revenues equal expenditure ("the accounts
balance") – particularly by a government. More generally, it refers to
when there is no deficit, but possibly a surplus. (echilibru bugetar)
 budget deficit = the amount by which government expenditure exceeds
income from taxation, customs duties, etc., in any one fiscal year.
Government budget deficits can be cured by cutting spending, raising
taxes or a combination of the two. Deficits must be financed by
borrowing money. Interest must be paid on borrowed funds, which
worsens the deficit. (deficit bugetar)
 budget surplus = the excess of a government’s total income over its
expenditure. This can be used to repay government debt. Budget
surpluses can be calculated for any level of government -central, local,
state in federal countries such as Germany or the US- or for general
government, which is all these levels combined. (surplus bugetar)
 central bank = a banker’s bank at the centre of a country’s monetary system.
Central banks act as lenders of last resort, lead the interest rate
structure, accept deposits, make loans to the commercial banks and in
most countries supervise the banking system. The central bank also
acts as the government’s own bank, manages the national debt and
controls the note issue. Central banks deal with each other in
conducting transfers of currency and bullion between countries and
are heavily involved, with finance ministers, in international economic
relations.
 fiat money = money that is not backed by anything other than a government
trust. Fiat money has no intrinsic value; it only has value at all because
all participants in an economy agree to trust the government issuing
the currency. All modern money is fiat money. While deflation is
possible for fiat money, it is much more susceptible to inflation.
(monedă fiduciară)
 nominal price = the price of a product or financial security in terms of current price
levels, not adjusted for the effects of inflation
 financial asset = titles to cash such as a bank deposit or income and/or capital
gains such as ordinary shares; claims on real assets (marketable
securities)
 financial liability = being responsible for paying debts or obligations of a
business, even under severe adverse financial circumstances
 lender of last resort = An institution, normally a central bank, that stands
ready to lend to the commercial banking system when he latter is in an
overall shortage of funds. The latter position will arise when extra-
 large payments out of the banking system reduce the banking system’s
holdings below the level appropriate to its reserves. The central bank
will, in such cases, lend at short term to the banking system until such
time as funds return through normal depositors.
 national debt = the outstanding borrowings of the government, including
overseas borrowing. Most of it consists of government and
government-guaranteed securities.
 store of value = in economics, the function of money that enables goods and
services to be paid for some time after they have been acquired or
made use of.
 unit of account = 1. In economic theory, one of the functions of money (i.e. a
generally accepted unit of value) available to establish the price of
goods. 2. The standard unit, usually an intangible creation, used
normally by international financial organizations to measure their
financial activities.

7.2. PRACTICE
7.2.1. READING COMPREHENSION
1. TRUE/FALSE: Decide whether the following statements are true or false:

1. An economy without money is generally known as a barter economy.

TRUE  FALSE 
2. In a barter economy there is no need for a double coincidence of wants, the goods
are simply exchanged for other goods or services.
TRUE  FALSE 
3. Historically, there have been such physical items as gold or silver that served as
money.
TRUE  FALSE 
4. Financial assets which are used as money also have the property of being
transferable from one person to another.
TRUE  FALSE 
5. In most economies, what serves as money has become either a physical item with
intrinsic value or a bookkeeping entry with no physical existence.
TRUE  FALSE 
6. The authorization to move funds from one bank account to another is increasingly
taking the form of currency transfer.
TRUE  FALSE 
7. Financial assets are never accepted as a means of payment.
TRUE  FALSE 
8. Money is often referred to as a medium of exchange.
TRUE  FALSE 
9. Money need not retain its value between the time of receipt to the time of
disimbursment.
TRUE  FALSE 
10. In times of high levels of inflation, money loses value quickly and hence it
performs its function as a store of value better.
TRUE  FALSE 
2. MULTIPLE CHOICE. Fill in the blanks with the most appropriate word or
phrase from the text:

1. In a barter economy people … goods directly for other goods.

a) exchange b) alter c) modify d) change
2. There are occasionally … of some direct barter between companies, but these are
relatively rare.
a) rapports b) exports c) reports d) imports
3. In most economies what serves as money has become either a physical item with
an … value.
a) extrinsic b) ephemeral c) inherent d) intrinsic
4. Paper money is increasingly becoming … as most transactions are now financed
by the exchange of bank deposits
a) obsolete b) redundant c) outdated d) old-fashioned
5. The authorization to move funds from one bank account to another takes the form
of … transfer.
a) electronic b) money c) goods d) online
6. Notes and coins are issued by the central bank on behalf of the … .
a) administration b) president c) state d) government
7. The financial assets which are used as money also have the property of being …
from one person to another.
a) changeable b) transferable c) passable d) separable
8. The commonly accepted definition of money is that it is any … that performs a
series of functions in the economy.
a) experience b) occurrence c) item d) commodity
9. One of the generally accepted functions of money is that it is: …
a) means of exchange b) medium of payment c) means of payment
10. Money serves as a store of value which means that at minimum it should retain
its … between the time of receipt to the time of disbursement.
a) fixed nominal price b) value c) unit d) medium

3. Answer the following questions:

1. Explain what a barter economy is in your own words.

2. What is a double coincidence of wants?
3. How is money used?
4. What physical items may be used as money and what is their value?
5. Do notes and coins have value in themselves or are they backed by gold and
silver?
6. What are the most widespread means of payment that have come to increasingly
replace paper money?
7. Which is the institution responsible for issuing money?
8. Why do we need to define money in terms of its characteristic functions?
9. Which are the functions of money nowadays?
10. What is the commonly accepted definition of money?

7.2.2. VOCABULARY STUDY

1. Fill in the blanks with words and phrases from the text above:
1. Nowadays, many people lead very busy lives, so spare time is a very precious …
for most.
2. Payments by check easily outnumber cash … .
3. His … included shares in the company and a house in the country.
4. I wouldn’t … places with him for anything.
5. Prices … with each new season.
6. Nobody can … the consequence of global inflation.
7. I’m short of …, so I’ll pay you next week.
8. Employees are encouraged to … shares in the company.
9. The inhabitants of the island used a … system to trade their goods.
10. This mark … that a word has been deleted.

2. Find words and phrases in the text that match the following definitions:

1. a system of automatic transfer of funds from one account to another by electronic

means.
2. the act of carrying out or conducting especially business.
3. carrying on of trade by exchanging one commodity for another without the use of
money.
4. something that has value on earning power. The total property of a person,
company or institution, especially that part which can be use to pay debts.
5. an obligation to make a financial payment, i.e. repayment of a bank loan, payment
of a commercial bill, payment of a business invoice. In case of a company these
include its bank loans, an overdraft, its short-term debts for goods and services
received, its loan capital and the capital subscribed by shareholders.
6. the amount of tax a person or company owes
7. a) wealth and ability to buy goods with it; b) value (of a unit of money) in terms of
what it can buy.
8. one of a number of equal portions in the nominal capital of a company, entitling
the owner to a proportion of distributed profits and of residual value if the company
goes into liquidation.
9. the amount of money standing to the credit of a customer of a bank.
10. long-term borrowing of money with fixed interest on specified payment dates
with a stated maturity.

3. Translate the following sentences by using one of the following phrases from
the text: bookkeeping entry, central bank, nominal price, financial assets, financial
liability, lender of last resort, national debt, unit of account

1. Compania pe care o conduce devine nu doar un creditor în ultimă instanţă, ci în

multe cazuri, singurul creditor disponibil.
2. Funcţia de unitate de cont poate fi îndeplinită de monedă, fără existenţa fizică a
acesteia.
3. Prin datorie publică se înţelege datoria pe care o are statul faţă de terţi, precum
bănci, întreprinderi, etc.
4. Formele de înregistrare contabilă au evoluat în decursul timpului potrivit
condiţiilor existente, caracterizându-se întotdeauna prin apariţia unor elemente noi
pentru realizarea sarcinilor concrete ale fiecărei etape de dezvoltare economică.
5. Titlurile de valoare, recunoscute ca active financiare se evaluează iniţial la costul
de achiziţie.
6. În unele cazuri, titlul de proprietate trece de la chiriaş la sfârşitul închirierii pentru
un preţ nominal.
7. Banca Centrală Europeană (BCE) este banca centrală a Uniunii Europene, cu
funcţia de administrare a politicii monetare în ţările care folosesc euro.
8. Carpatair a cerut la tribunal insolvenţa companiei Blue Air, susţinând că are o
datorie neachitată din luna septembrie a anului trecut, obligaţie financiară pe care
operatorul low-cost nu o recunoaşte.

4. POLYSEMY. Translate into Romanian:

a) MONEY.

1. How much money is there in my bank account? 2. He inherited a lot of money

from a distant relative and then wasted all of it on the pools. 3. She married for
money but soon realized that it was not what she really wanted. 4. He had a little
money put aside so he decided to invest it and put it into stocks, shares and
government bonds. 5. For my money, Mary’s idea is better than Jennifer’s. 6.
Although he claimed not to be made of it, he appeared to be in the money. 7. Ever
since they opened the deli they have been making money head over fist. 8. Jeffrey
squandered all his money on fast cars. 9. Since we left in such a hurry, we’ll have to
change some money at the airport. 10. The government thinks it can solve the issue
by throwing money at it. 11. The two brothers grew up in a family where money was
always tight.

b) TO BACK.

1. Our house backs onto the river. 2. This is the candidate backed by the Labour
Party. 3. Despite being heavily backed the favourite horse did not win the race. 4.
The photograph was backed with cardboard. 5. The child backed away from the big
dog. 6. He proved that he was right and his critics had to back down. 7. It’s too late
to back out of the deal now. 8. If I tell the police that I was with you that day will you
back me up? 9. He had a newspaper empire backing him. 10. The contenders backed
down from their original pledge. 11. They backed off from fundamental reform of
the system.

5. SYNONYMY. Fill in the blanks with the appropriate word:

a) WEALTH, FORTUNE, ABUNDANCE, AFFLUENCE, ASSETS, CAPITAL,
RESOURCES, TREASURE.

1. When they set up their business the starting … was of 100000£.

2. The mortgage is a drain on our financial … .
3. He quickly rose to … due to well invested funds.
4. He made a considerable … by selling waste materials.
5. The country’s … is based on trade and tourism.
6. The tropical island boasts a(n) … of wildlife.
7. The new financial consultant proved to be a real … .
8. The … of the family consisted in government bonds and real estate.

b) WAGES, SALARY, REMUNERATION, PAYMENT, RETRIBUTION,

COMPENSATION, ALLOWANCE, INCOME.

1. They should receive a fair … for their work.

2. … of injured workers has cost the company a lot.
3. During the recent strike in the sanitary system the question of ‘how high should a
doctor’s … be’ was not addressed by the authorities.
4. Tax and insurance are deducted from your weekly … .
5. While he was still in high school his parents granted him a(n) … of 15£ a day.
6. He was jailed in … for his heinous crimes.
7. Tax is payable on all … over 2000£.
8. … of subscriptions should be done via mail.

6. COMPOUNDING. TYPES OF PEOPLE. Fill in with one of the following words:

moneybags, money broker, money changer, money-grubber, moneylender,
moneymaker.

1. … are wealthy people.

2. A … is a person or thing that earns a lot of money.
3. A … is a person or a company that negotiates loans between banks or other
financial institutions.
4. A … is a person whose business is lending money to others who pay interest.
5. A … is a person whose business was the exchanging of one currency for another.
6. A … is a person who is overeager to make money.

7.2.3. TRANSLATION PRACTICE

1. Translate the following texts into English:

a) Un sfat bun despre bani, care nu-şi pierde niciodată actualitatea, este:
„Economiseşte mai mult şi cheltuieşte mai puţin” întrucât cei mai ieftini bani sunt cei
fără dobândă, adică banii proprii. O analiză efectuată de grupul GfK în privinţa
tendinţelor de economisire în 14 ţări din Europa Centrală şi de Est, arată că, noi,
românii, ne gândim mai mult la viitorul apropiat şi mai puţin la cel îndepărtat şi
preferăm să cheltuim banii pe necesităţile imediate şi mai puţin pentru asigurarea,
de exemplu, a unei pensii îndestulătoare, aşa cum fac austriecii, cehii, croaţii sau
maghiarii. De vină este şi puterea scăzută de cumpărare, printre cele mai slabe din
Europa. Dacă în Polonia o persoană cheltuieşte 28% din totalul veniturilor pe
mâncare, în România procentul este dublu.
(adaptat şi prescurtat din editorialul Ghidul de bani nr. 11/iunie 2006)

b) România rămâne ţara cu cel mai scăzut nivel al avuţiei financiare şi al îndatorării
pe locuitor din regiune. Conform unui studiu publicat de UniCredit, avuţia
financiară a românilor, reprezenta, la sfârşitul anului 2005, doar 20% din PIB, faţă de
53% cât este media în zona Noua Europă. Dar acest lucru se va schimba. Pentru
perioada 2006-2008, UniCredit România estimează o creştere medie anuală a avuţiei
financiare a românilor de 17% (comparativ cu media de 10% din zona NE) ca urmare
a accentuării preferinţei pentru fondurile mutuale şi pentru asigurări. Băncile se
pregătesc deja să lanseze produse atractive şi pe segmentul de pasive (depozite). De
exemplu, una dintre băncile comerciale care operează în România se pregăteşte să
lanseze certificate de depozit cu dobândă progresivă.
(adaptat şi prescurtat din Ghidul de bani , pg. 17, nr. 11/iunie 2006)

c) În topul preferinţelor pentru economisire sunt conturile curente şi depozitele pe

termene scurte. Se pare că românii îşi ţin banii în bancă doar ca să nu-i ţină sub saltea
până în momentul în care găsesc pe ce să-i cheltuie.
După cum a declarat Patrick Gelin, preşedintele şi directorul general al BRD,
„problema esenţială a economisirii în România sunt termenele scurte. Se depozitează
bani pe termene de o lună sau 3 luni, ceea ce nu înseamnă economisire în adevăratul
sens al cuvântului. Direcţia principală pe care va trebui să o urmeze economisirea în
România este ca depozitarea şi investiţiile să se facă pe termen mediu.”
(adaptat şi prescurtat din eFinance, pg 14,anul VI-nr. 70, iunie 2006)

d) Din fericire, se pare că a trecut vremea în care economisirea însemna schimbul

leilor în dolari sau euro.
În cursul lunii mai, moneda naţională a cunoscut cea mai scăzută valoare din
ultimele trei luni, un euro echivalând cu 3,55 lei. Pe de altă parte, specialiştii
UniCredit, într-un studiu recent referitor la orientările macroeconomice în Europa
Centrală şi de Est apreciază că tendinţa constantă pentru următoarele luni este de
apreciere a leului. Potrivit economiştilor italieni, cursul de schimb se va plasa la
sfârşitul acestui an la 3,49 lei / euro, iar la finele lui 2007, la 3,45 lei / euro.
(adaptat şi prescurtat din eFinance, pg 14, anul VI-nr. 70, iunie 2006)

e) Banca Naţională a României a împlinit 130 de ani. În legea de înfiinţare a băncii,

din aprilie 1880, primul articol stipula că se instituie „o bancă de scompt şi
circulaţiune”. Acesta era primul interes al ţării: scontul, operaţiune care să-l ajute pe
negustorul care livrează marfa cu plata peste o lună să-şi primească banii chiar
astăzi. Iar la scadenţa efectului de comerţ să i se plătească băncii contravaloarea
înscrisă în poliţă.
Deci în 1880 ia fiinţă Banca Naţională a României. O societate anonimă care
avea un capital social de 30 de milioane de lei, împărţit în 60.000 de acţiuni la
purtător, din care o treime fusese subscris de stat şi două treimi de deţinători privaţi.
În 1925, capitalul a crescut la 100 de milioane fiind împărţit în 200.000 de acţiuni a
câte 500 de lei. Cu această ocazie, acţiunile au devenit nominative.
În 1929, capitalul s-a majorat din nou la 600 de milioane de leiprin
încorporarea a 500 de milioane de lei din rezerve, iar cele 200.000 de acţiuni şi-au
mărit valoarea la 3.000 de lei. Spre deosebire de 1880, când deţinea două treimi din
acţiuni, în perioada interbelică participarea statului s-a micşorat la doar 10% (20.000
de acţiuni).
Guvernatorul Mugur Isărescu a precizat săptămâna tercută că BNR a fost
creată după modelul băncii centrale belgiene. Banca Naţională a Belgiei, înfiinţată în
mai 1850, continuă să aibă statutul de societate pe acţiuni. Capitalul său social este
de 10 milioane de euro, împărţit în 400.000 de acţiuni, din care jumătate sunt
controlate de stat.
(În perioada interbelică, BNR era 90% privată în Săptămâna Financiară, pg 3, 3 mai
2010)

2. Translate the following texts into Romanian:

a) Money has never been so cheap. The average short-term interest rate in the big
economies is at its lowest in recorded history. By slashing interest rates to only 1%
after the stock-market bubble burst, America’s Federal Reserve deserves much of the
credit for saving the American economy from a deep recession and possible
inflation. Many commentators had fretted that low interest rates might fail to spur
the economy, because consumers were already up to their necks in debt. But
households have borrowed more to keep spending and America’s economy is now
growing briskly.
(adapted and abridged from Playing loose with money – The Economist, March
13th2004)

b) By many measures, monetary policy is now looser than at any time since the 1970s
when inflation took off. Although consumer-price inflation remains low, the
liquidity that the Fed has created by holding interest rates down is spilling over into
asset markets. […] Over the past 12 months, America’s stock market has enjoyed its
biggest gain in real terms for 50 years. […] Household debt rose last year at its fastest
pace for two decades as consumers borrowed against those capital gains. This hardly
looks like an economy that requires a massive monetary stimulus […]
(adapted and abridged from Playing loose with money –The Economist, March
13th2004)

c) Money has been defined in terms of three functions and one of those functions is
that money is a generally accepted means of payment. Translating that definition of
money into a measure of what actually constitutes money at a particular place and
time faces some difficulties. For instance, a check will not usually be accepted as
payment for a bus fare, but trying to buy a house for cash is likely to raise suspicion.
(adapted from Microeconomics – Measures of Money)

d) The narrowest form of money, often referred to as the monetary base, is money
issued by the central bank and consists of notes and coins and reserves held by the
banks with the central bank. This form of money is part of the national debt as it is a
debt of the central bank and appears to be the form of money directly under the
control of the central bank.
(adapted from Microeconomics– Measures of Money)

e) Long considered the ultimate hard asset, gold normally shines at times of financial
turmoil. In the aftermath of September the 11 th, one might have expected that gold
would take up its traditional role as asset of last resort. However, its performance
was less than glittering. […] Despite talk of recession and retaliation, gold rose only
by 6% on September 11 th, and it then lost nearly half that gain the following day. […]
Some of the lack of interest can be put down to a shortage of liquidity. But even
when the Bank of England went ahead with its 20-tonne gold auction on September
12th, prices were barely higher than in previous weeks. The gold price may yet soar.
[…] Most gold experts see nothing more sinister in the low gold price than weak
demand. In the past ten years, gold has shown little response to macroeconomic or
political news of any kind.
(adapted and abridged from Fingered? – The Economist, September 15th2001)