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    Evolution and Function of Money

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    s shaikh
    Money serves three main functions: as a medium of exchange, a unit of account, and a store of value. The evolution of money began with barter systems and commodity money like shells or precious metals. Paper money later emerged, followed by demand deposits and electronic forms of money. Money facilitates transactions and economic activity by fulfilling its primary roles and also functions secondarily as a standard for deferred payments and way to transfer value.

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    Evolution and Function of Money

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    s shaikh
    304 views16 pages
    Money serves three main functions: as a medium of exchange, a unit of account, and a store of value. The evolution of money began with barter systems and commodity money like shells or precious metals. Paper money later emerged, followed by demand deposits and electronic forms of money. Money facilitates transactions and economic activity by fulfilling its primary roles and also functions secondarily as a standard for deferred payments and way to transfer value.

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    Money serves three main functions: as a medium of exchange, a unit of account, and a store of value. The evolution of money began with barter systems and commodity money like shells or precious metals. Paper money later emerged, followed by demand deposits and electronic forms of money. Money facilitates transactions and economic activity by fulfilling its primary roles and also functions secondarily as a standard for deferred payments and way to transfer value.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    304 views16 pages

    Evolution and Function of Money

    Uploaded by

    s shaikh
    Money serves three main functions: as a medium of exchange, a unit of account, and a store of value. The evolution of money began with barter systems and commodity money like shells or precious metals. Paper money later emerged, followed by demand deposits and electronic forms of money. Money facilitates transactions and economic activity by fulfilling its primary roles and also functions secondarily as a standard for deferred payments and way to transfer value.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 16

    Evolution and function of money

    What is money?
    • Money is anything that
    serves as a medium of
    exchange, a unit of
    account, and a store of
    value.
    What is money? (cont’d)

    • Money as a Medium of Exchange


    • A medium of exchange is anything that is used to determine
    value during the exchange of goods and services.
    • Money as a Unit of Account
    • A unit of account is a means for comparing the values of
    goods and services.
    • Money as a Store of Value
    • A store of value is something that keeps its value if it is stored
    rather than used.
    Characteristics of Money
    • The coins and paper bills used as money in a society are called
    currency. A currency must meet the following characteristics:
    • Durability
    • Objects used as money must withstand physical wear and tear.
    • Portability
    • People need to be able to take money with them as they go about their
    business.
    • Divisibility
    • To be useful, money must be easily divided into smaller
    denominations, or units of value.
    Characteristics of Money
    (cont’d)
    • Uniformity
    • Any two units of money must be uniform, that is, the
    same, in terms of what they will buy.
    • Limited Supply—SCARCITY!
    • Money must be available only in limited quantities.
    • Acceptability
    • Everyone must be able to exchange the money for goods
    and services.
    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
    Money throughout the history of the world
    Shells
    Live stock
    Precious stones
    Skulls
    Pearls
    Wheat
    Feathers
    Brass
    Silver
    Gold
    Paper money:
    Paper currency that is circulated for
    transaction-related 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.
    Paper money
    Advantages Disadvantages
    Economical Danger of inflation
    Elasticity of money supply Internal price instability
    Promotes economic growth Exchange instability
    Internal price stability Dangerous of mismanagement
    Helpful in emergency Fear of demonetization
    Regulation of exchange rates Use within the country
    Uniform quality
    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, cheque, 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
    electronic ways such as Smart cards, Digital
    wallets and micropayments
    Functions of money:

    Primary functions Secondary functions

    1. Medium of exchange 1. Store of value


    2. Unit of account 2. Standard of defer
    payments
    3. Easy transfer of value
    Primary functions:

    Medium of exchange Unit of account

     Generally acceptable.  Standard monetary unit for


     Removed the needs of double measurement of goods services and
    coincidence of wants. assets.
     Remove the difficulties of barter  It is a common denominator which
    system. determines the rate of exchange
     Make transaction on time at any between goods and services.
    place.  It is used to check profit loss and
     Works as intermediary between labor liabilities.
    and production to increase output.
    payments:
    Secondary
    Standard of functions:
    deferred Store of value: Transfer of value:

    Debt are easily return Works as bridge between Money has ability to
    back with the same value present and future value of transfer value one person
    of money wealth. to other person easily at
    Make possible contracts It is used to meet any place.
    for goods and services unforeseen emergency and
    against the bond and to pay debt.
    securities Equally chances of gain
    Fixed debt contracts and loss because it is
    eliminate the gain or loss of included bonds securities
    creditor and debtor. commercial papers.

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