Evolution and function of money

Contents:
Evolution of money

Classification of money

Function of money

Evolution of money:

Barter system
Commodity money
Paper money
Demand deposits
E-money

Barter system:
Direct exchange of goods and services for other goods
and services

Difficulties in barter system:

Lack of double co-incidence of wants.

Lack of common measures of values.
Difficulties in storing values.
Deferred of payments / Absence of loaning.
Indivisibility of certain goods.

Commodity money:
Commodity money is money whose value comes from
a commodity of which it is made. Commodity money
consists of objects that have value in themselves as
well as value in their use as money

Paper money:
Paper currency that is circulated for transactionrelated purposes. The printing of paper money is
typically regulated by a country's central
bank/treasury in order to keep the flow of money in
line with monetary policy.

Demand deposits:
Demand Deposit refers to a type of account held at
banks and financial institutions that may be
withdrawn at any time by the customer. The majority
of such Demand Deposit accounts are checking and
savings accounts.

E-money:
All types of money which people deal with it
electronically, far from traditional ways of payment
like banks, cheques, paper money and coins, e-Money
allow users through internet or wireless devices to pay
the charges of their purchases directly from their bank
accounts by electronical ways such as Smart cards,
Digital wallets and micropayments

Classification of money:

Metallic money:

Standard money

1.

Token money
Face value >Hidden value

2.

Convertible paper money

Slip issued against gold where face
and hidden values was equal

Subsidary money
payment cannot exceed more than 25
in coin.

Representative money
Slip issued agaisnt commodities and
metals which was used as money

Face value = Hidden value

.

Paper money

3.

Inconvertable paper money

we cannont change from reserve as
face value less than hidden value.

4.

Fiat money
Colour Money issue during any
emergancy to over come the deficit
and it become useless after that
emergancy.

Legal tender and non legal tender money

Legal tender money

Non legal tender money

Issued by the central bank

People has trust
Limited and unlimited legal
money

It is not generally accepted

It is optional money because it
is in form of cheques ATMs

Legal tender and non legal tender money

Limited legal money

Limited legal tender money is

that which a creditor can
accept in settlement of claims
up to certain limit only. In
Pakistan coins of small
denomination valuing upon
paisa 50 are limited legal
tender money.

Unlimited legal money

Unlimited tender money is one

in terms of which debt can be
legally paid up to any amount.
In Pakistan, for instance notes
of state bank of Pakistan
valuing Rs. 100.00, Rs. 5.00
and Rs. 1.00 are full legal
tender
money.

Functions of money:
Primary functions
1.
2.

Medium of exchange
Unit of account

Secondary functions
1.
2.
3.

Store of value
Standard of deffer payments
Easy transfer of value

Primary functions:
Medium of exchange

Generally acceptable.
Removed the needs of double
coincidence of wants.
Remove the difficulties of
barter system.
Make transaction on time at
any place.
Works as intermediary between
labor and production to
increase output.

Unit of account

Standard monetary unit for

measurement of goods services
and assets.
It is a common denominator
which determines the rate of
exchange between goods and
services.
It is used to check profit loss
and liabilities.

Secondary functions:
Standard of
payments:

deferred Store of value:

Debt are easily return

back with the same value
of money
Make possible contracts
for goods and services
against the bond and
securities
Fixed debt contracts
eliminate the gain or loss of
creditor and debtor.

Works as bridge between

present and future value of
wealth.
It is used to meet
unforseen emergency and
to pay debt.
Equally chances of gain
and loss because it is
included bonds securities
commercial papers.

Transfer of value:
Money has ability to
transfer value one person
to other person easily at
any place.