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 transaction-re-

lated purposes. The printing of paper money is typi-cally regulated by a country's central bank/treasury in order to keep the flow of money in line with mone-tary policy.

Demand deposits:

Demand Deposit refers to a type of account held at banks and financial institutions that may be with-drawn at any time by the customer. The majority of such Demand Deposit accounts are checking and sav-ings accounts.

E-money:

All types of money which people deal with it electroni-cally, 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

Face value = Hidden value

Token money

Face value >Hidden value

Subsidary money payment cannot exceed more than 25

in coin.

Paper money

1. Representative money Slip issued agaisnt commodities and

metals which was used as money

2. Convertible paper money Slip issued against gold where face

and hidden values was equal

3. Inconvertable paper money

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

4. Fiat money Colour Money issue during any emer-

gancy to over come the deficit and it become useless after that emergancy.

Legal tender and non legal tender money

Legal tender money

Issued by the central bank People has trust Limited and unlimited legal

money

Non legal tender money

It is not generally accepted It is optional money because it

is in form of cheques ATM’s

Functions of money:

Primary functions

1. Medium of exchange

2. Unit of account

Secondary functions

1. Store of value

2. Standard of dafer payments

3. 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 in-crease 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 deferred payments:

Store of value: Transfer of value:

Debt are easily return back with the same value of moneyMake possible contracts for goods and services against the bond and securitiesFixed 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.

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