EVOLUTION OF MONEY
OBJECTIVES
1.Facilitate
exchange of goods and services in the absence of a standardized medium of
exchange.
2.Use
universally accepted goods as a medium of exchange and store of value.
3.Introduce
standardized coins made from precious metals to ensure uniformity in trade.
4.Replace
heavy and scarce metals with lightweight, portable currency backed by reserves
of precious metals (initially).
5.Increase
efficiency and accessibility of transactions through electronic systems.
MIND MAP
.png)
DEFINITION OF MONEY
Economists
identify more than one kind of money. In this lesson, "money" refers
specifically to the money of exchange, i.e., money as a symbol of value and as part of a system of
payment. This form of money is traditionally a physical object that one
provides in exchange for goods or services.
FUNCTIONS OF MONEY
There
are many static and dynamic functions of money as follows:
Static
Functions of Money
- A medium of Exchange – In an exchange
economy, money plays an intermediary role. It makes the exchange system
smooth and convenient.
- A measure of Value – The value of a
product or service is determined on the basis of the money needed for its
possession. This helps in making the exchange a mutually profitable
activity.
- The Standard of
Deferred Payments
– Money plays an important role in lending and borrowing. Money is taken
as a loan and repaid after a time-gap.
- Store of Value – You can store the purchasing power of money and keep a part of it for future use – monetary savings. You can use your current income for current consumption as well as future consumption through savings.
Dynamic
Functions of Money:
- Money can activate
idle resources and put them into productive channels.
- Therefore, it helps
in increasing output, employment, and also income levels.
- Further, it helps in
converting savings into investments.
- The creation of new
money governments of modern economies can spend more than what they earn.
TYPES OF EVOLUTION OF MONEY
(i) Commodity
Money:
In
the earliest period of human civilization, any commodity that was generally
demanded and chosen by common consent was used as money
Goods
like furs, skins, salt, rice, wheat, utensils, weapons etc. were commonly used
as money. Such exchange of goods for goods was known as ‘Barter Exchange’.
(ii)
Metallic Money:
With
progress of human civilization, commodity money changed into metallic money.
Metals like gold, silver, copper, etc. were used as they could be easily
handled and their quantity can be easily ascertained. It was the main form of
money throughout the major portion of recorded history.
(iii)
Paper Money:
It
was found inconvenient as well as dangerous to carry gold and silver coins from
place to place. So, invention of paper money marked a very important stage in
the development of money. Paper money is regulated and controlled by Central
bank of the country (RBI in India). At present, a very large part of money
consists mainly of currency notes or paper money issued by the central bank.
(iv)
Credit Money:
Emergence
of credit money took place almost side by side with that of paper money. People
keep a part of their cash as deposits with banks, which they can withdraw at
their convenience through cheques. The cheque (known as credit money or bank
money), itself, is not money, but it performs the same functions as money.
(v)
Plastic Money:
The
latest type of money is plastic money in the form of Credit cards and Debit
cards. They aim at removing the need for carrying cash to make transactions.
Frequently Asked Questions-FAQs
1.What are the evolution of money?
Money is anything that is generally accepted as a mode for payment of goods & services and repayment of loans & debts such as taxes, etc., in a particular nation or country. Money was invented to facilitate trade as the barter system, but it can not express the value and prices of goods & services. The term money covers everything, like currency notes, coins, cheques, etc., to carry out all economic transactions and settle claims. As a currency, money circulates from country to country and person to person to facilitate trade. Different stages of money are Commodity Money, Metallic Money, Paper Money, Credit Money, and Plastic Money.
2.Define the term "barter
system."
The barter system is an ancient method of trade where goods and services are directly exchanged for other goods and services without the use of money as a medium of exchange. For example, a farmer might trade grain with a blacksmith in exchange for tools.
3.
What is the main drawback
of using commodity money?
Lack of Portability:
Many commodities (e.g., gold, silver, or other tangible goods) are heavy or
bulky, making them inconvenient to transport or use for large transactions.
Divisibility Challenges: Some commodities are not easily divisible without losing value or practicality. For example, breaking a gold bar into smaller pieces may require specialized tools or may not retain consistent value.
4. What are the primary objectives behind the evolution of money?
- To
facilitate the exchange of goods and services in the absence of a
standardized medium.
- To
use universally accepted goods as a medium of exchange and store of value.
- To introduce standardized coins for uniform trade.
5.What is the definition of money in the context of this lesson?
Money is defined as a symbol of value and part of a system of payment,
traditionally a physical object exchanged for goods or services. It serves as a
medium of exchange within the economy.
Video on Evolution of Money
https://youtu.be/6dhzElwRX9U?si=GQa7jq1TRcheZZ7l
References
· Sundaram K.P.M. (1996), Money, banking and International Trade, Vikas, New Delhi.
· Jhingan M. L. (2004), Monetary Economics, Konark Publication, New Delhi.
· Vaish M.C. (2004), Money, Banking and International Trade, New Age International (P) Ltd, New Delhi.
· Sethi, T.T. (2003). Monetary Economics: S. Chand and Co., New Delhi
· Ghosh, B.N. and Rama Ghosh. (1989). Fundamentals of Monetary Economics, Himalaya Publishing House, Mumbai
GLOSSARY
1. Barter Exchange
A system of exchange where goods and services are directly traded for other goods and services without using a standardized medium of exchange.
2. Commodity Money
Goods that have
intrinsic value and were used as a medium of exchange in the earliest
economies.
3. Metallic Money
Coins made from metals like gold, silver, and copper,
used as money due to their portability, durability, and inherent value.
4. Paper Money
Currency in the form of paper notes issued and regulated by a central authority, such as the Reserve Bank of India (RBI).
5. Credit Money
Money in the form of bank deposits that can be
accessed through instruments like cheques.
6. Plastic Money
Money represented by credit and debit cards, allowing
transactions without the need for physical cash.
Contact
Dr.M.Petchiammal
Assistant Professor
Department of Economics
Sadakathullah Appa College
Rahmath Nagar,Tirunelveli
Emailto:apetchiammal88@gmail.com
Comments
Post a Comment