MONEYMONEY

BASIC FUNCTION OF BASIC FUNCTION OF MONEYMONEY

• facilitate the exchange of goods and facilitate the exchange of goods and services services

BARTERBARTER• Exchange of goods without the use of Exchange of goods without the use of

moneymoneyDIFFICULTIES OF DIFFICULTIES OF BARTERBARTER

• Barter tends to slow down trade.Barter tends to slow down trade.• Barter is difficult because of the lack Barter is difficult because of the lack

of double coincidence of wants.of double coincidence of wants.• Barter is also difficult due to the lack Barter is also difficult due to the lack

of proper way to equate the values of proper way to equate the values of the things exchanged.of the things exchanged.

• Barter is likewise difficult because of Barter is likewise difficult because of the indivisibility of some goods.the indivisibility of some goods.

The Birth on use of The Birth on use of MoneyMoney

• 3000 BC – earliest signs of the use of 3000 BC – earliest signs of the use of money (stamped in metal bars)money (stamped in metal bars)

• 7th Century BC – earliest known coins7th Century BC – earliest known coins• China – earliest country to use paper China – earliest country to use paper

money (7th Century AD) money (7th Century AD) • Europe – paper money first came into Europe – paper money first came into

use when merchants issued receipts for use when merchants issued receipts for the gold and other precious things left the gold and other precious things left with them for safekeeping.with them for safekeeping.

DEFINITION OF MONEYDEFINITION OF MONEY

• Legal: Legal: – Money is what the law says it is.Money is what the law says it is.

• Functional:Functional:– Money includes all things that perform Money includes all things that perform

the functions of money and excludes all the functions of money and excludes all others.others.

Traditional Characteristics Traditional Characteristics of Moneyof Money

• UtilityUtility• General AcceptabilityGeneral Acceptability• PortabilityPortability• Uniformity/HomogeneityUniformity/Homogeneity• MalleabilityMalleability• DivisibilityDivisibility• CognizabilityCognizability• DurabilityDurability

Functions of MoneyFunctions of Money

1.1. As a medium of exchangeAs a medium of exchange

2.2.As a standard of valueAs a standard of value

3.3.As a store of valueAs a store of value

4.4. As a standard of deferred As a standard of deferred paymentpayment

5.5.As a reserve or guaranty for As a reserve or guaranty for solvencysolvency

Classification of MoneyClassification of Money

• The physical characteristics of the The physical characteristics of the materials of which money is made.materials of which money is made.

• The nature of the issuer, such as a The nature of the issuer, such as a government, central bank, government, central bank, commercial bank.commercial bank.

• The relationship between the value The relationship between the value of money as money and value of of money as money and value of money as a commodity.money as a commodity.

Classification of MoneyClassification of Money

• Full-bodied MoneyFull-bodied Money• Representative Full-bodied MoneyRepresentative Full-bodied Money• Credit MoneyCredit Money

Forms of Credit MoneyForms of Credit Money

• Token CoinsToken Coins• Representative Token MoneyRepresentative Token Money• Circulating Promissory Notes Issued By Circulating Promissory Notes Issued By

GovernmentGovernment• Promissory Notes Issued By Private BanksPromissory Notes Issued By Private Banks• Circulating Promissory Notes Issued By Circulating Promissory Notes Issued By

Central BanksCentral Banks• Checking Deposits At BanksChecking Deposits At Banks• Electronic moneyElectronic money

DurabilityDurability

•Money would have to Money would have to withstand the normal wear withstand the normal wear and tear.and tear.

standard of deferred standard of deferred payment payment

• Money serves as a basis or Money serves as a basis or measurement for future debt measurement for future debt contracts.contracts.

Representative Full-bodied Representative Full-bodied MoneyMoney

• a circulating warehouse receipt for a circulating warehouse receipt for full-bodied coins or their equivalent full-bodied coins or their equivalent in bullion. in bullion.

Circulating Promissory Circulating Promissory Notes Issued By Notes Issued By Central BanksCentral Banks

The largest part of the hand-to-hand The largest part of the hand-to-hand currency that is used in the most currency that is used in the most advanced countries is in the form of advanced countries is in the form of circulating promissory notes issued circulating promissory notes issued by central banks.by central banks.

Gresham’s Law Gresham’s Law

• ““Bad money drives good money out Bad money drives good money out of circulation” of circulation”

Full-bodied MoneyFull-bodied Money

• money whose value as a commodity money whose value as a commodity for non-monetary purposes is a great for non-monetary purposes is a great as its value as money. as its value as money.

Uniformity/HomogeneityUniformity/Homogeneity

• Money is standard and uniform Money is standard and uniform metal or paper form to avoid metal or paper form to avoid confusion.confusion.

centavos centavos

• one hundred equal parts of Pesoone hundred equal parts of Peso

ChinaChina

• earliest country to use paper money earliest country to use paper money

Goldsmith’s receipts Goldsmith’s receipts

• proof of ownership that were proof of ownership that were circulated as money in Europecirculated as money in Europe

IndivisibilityIndivisibility

Barter is likewise difficult Barter is likewise difficult because of the because of the ______________of some ______________of some goods.goods.

Legal Definition of Legal Definition of MoneyMoney

• Money is what the law says it is.Money is what the law says it is.

a standard of value a standard of value

• Measures the values or utilities of Measures the values or utilities of the objects exchanged through the the objects exchanged through the pricing system.pricing system.

General AcceptabilityGeneral Acceptability

• Common usage of it would allow the Common usage of it would allow the object to transfer from one hand to object to transfer from one hand to another without question of its another without question of its origin.origin.

Checking Deposits At Checking Deposits At BanksBanks

Bank debts payable on demand and Bank debts payable on demand and are claims of creditors against a are claims of creditors against a bank which can be transferred from bank which can be transferred from one person or firm to another by one person or firm to another by means of checks or other orders to means of checks or other orders to pay.pay.

UtilityUtility

• Could be used not only as money but Could be used not only as money but in its own original form.in its own original form.

BarterBarter

• Exchange of goods without the use Exchange of goods without the use of moneyof money

Medium of ExchangeMedium of Exchange

• Money allows the presence of double Money allows the presence of double coincidence.coincidence.

Credit Money Credit Money

• any money, except representative any money, except representative full-bodied money, that circulates at full-bodied money, that circulates at a value greater than the commodity a value greater than the commodity value of the material from which it is value of the material from which it is mademade

CognizabilityCognizability

• The commodity used as money The commodity used as money should be easily recognized.should be easily recognized.