A BRIEF HISTORY OF MONEY

Monetary Policy and Central

Banking
Development of Monetary System
 Barter system was the
first stage of monetary
development. It is the
direct exchange or
swapping of goods for
goods, services for
services, goods for
services, or services for
goods.
 Barter Economy-
moneyless economy
that relies on trade or
barter
 Development of Monetary System
 Society abandoned the barter system for the
following reasons:
1. It was difficult to look for that person who has the things you
need and who also wants the things you are offering for
exchange.
2. There is no common denominator to measure the value of
goods and services sought for exchange.
3. Most of the goods traded have unequal values.
4. It is time consuming, cumbersome and very inconvenient for
individuals to use the barter system.
5. It lacks generalized purchasing power.
 Early Commodity Money
 commodities
such as livestock
and grain were
used as money
for many
societies
 Early Money
 Early Societies developed forms of proto-money
which were commodities that everyone agreed
to accept in trade
 Examples:
Aztecs-Cacao Beans (aka cocoa beans)
Norwegians-Butter
Colonists- Tobacco leaves, animal hides
China, India, Thailand, and West Africa-Cowrie shells
 China: 1200 BC
 The
Chinese
began using
cowries as
money
 China: 1200 BC
 By1000 BC,
“tool currencies”
were adopted.
These were
miniature metal
models of
spades, hoes,
blades, etc.
The First True Coins: 561 BC
 The Lydian King
Croesus created
the first true
coin.
Middle Ages: 800 – 1500 AD
 Medieval
coinage was
standardized by
Charlemagne
when he
conquered most
of Europe
around 800AD
 Chinese Paper Currency: 806
AD
 Due to a severe
copper shortage,
the Chinese
begin issuing
paper currency.
Frequent
reissues fuel
inflation
1100 AD: British Tally Sticks
 KingHenry
issued the first
Tally Sticks in
1100AD. This
practice lasted
in England for
over 700 years!
 Evolution of Money
 The goldsmiths were instrumental in the
evolution of money.
 They helped develop the use of money by
accepting gold bullions to be converted
into coins.
 They also accepted gold deposits for safe-
keeping.
 They also helped in the transfer of
precious metal by means of receipts.
 Evolution of Money
 Minting of coins
- Gold bullions were converted into coins
- Coins were considered the first type of modern
money
- They were not in standard form, so each
transaction required weighing and testing for its
quality.
- The kings, goldsmiths and bankers found the
method to be cumbersome, they stamped the
coins to guarantee its integrity as to weight and
fineness. Standard coins came into use.
 What would you trade?

 Ifwe did not have Philippine currency

today, what do you feel we as a society
could trade as proto-money?
Explain purchasing power and include how it affects a country’s economy.
 FUNCTIONS OF MONEY
1. As a medium of exchange
 Money is used as a means of
payment for transactions for the sale
and purchase of goods and services.
 Enables goods and services to be
transferred from person to person.
 Money is available as cash, checks
or electronic cards
 FUNCTIONS OF MONEY
2. As a standard to measure the value of
goods and services
 Money measures the value of goods
and services.
 It is used as a yardstick in the pricing
of things.
 The monetary unit of the country is
used as a standard of value.
 FUNCTIONS OF MONEY
3. As a store of value
 Money can be kept for future use.
 It is widely acceptable thus enjoys a
generalized purchasing power and
can serve as a store of value.
Question:
 What is the possible disadvantage of
storing money?
 FUNCTIONS OF MONEY
Two ways of keeping money for future use:
1. By saving
- depositing it to banks
2. By investing
- business
- corporate or government
securities such as stocks and
bonds
- money market
- real estate properties
- jewelries
 FUNCTIONS OF MONEY
4. As a means of deferred payment
 Money enables people to buy goods
on credit. Goods and services can be
obtained at the present time in
exchange for a promise to pay at a
future date.
 ATTRIBUTES OF MONEY
1. General Acceptability
- It refers to the willingness of people to
accept the money in exchange for goods
and services.
- It should be acceptable to everybody in a
specific territory.
 ATTRIBUTES OF MONEY
2. Stability of Value
- Before a particular kind of money
becomes acceptable, it must first have a
stable value.
- The purchasing power of money should
not change abruptly.
- If ever there will be changes, such change
should be gradual.
 ATTRIBUTES OF MONEY
3. Portability
- This refers to the quality of money being
easily carried from place to place.
- It is important that the material used as
money should conform to this
characteristics.
 ATTRIBUTES OF MONEY
4. Cognizability
- The money circulating within a country
can be easily distinguished from other
kinds of money.
- A fake bill can be recognized from a
genuine bill.
- The best way to determine a counterfeit
bill from a genuine bill is through the red
and blue fibers scattered all over the
paper bill.
 ATTRIBUTES OF MONEY
5. Divisibility
- The material used as money must be
capable of being divided into smaller
denominations without impairing or
destroying the value of the whole.
 ATTRIBUTES OF MONEY
6. Homogeneity
- The material used as money should not
only be capable of being divided into
equal parts or smaller units, but that such
equal parts should have equal weight and
fineness and must be made of the same
material and possess equal value.
 ATTRIBUTES OF MONEY
6. Elasticity
- This characteristic refers to the volume of
money being capable of manipulation by
monetary authorities.
- Money supply can easily be increased or
decreased depending upon the needs of our
economy.
- Thus, when there is too much money in
circulation, the Central Bank institutes
measures or monetary policies that would
absorb the excess liquidity in the economy by
increasing the discount rates.
 ATTRIBUTES OF MONEY
7. Durability
- This characteristic enables money to
withstand wear and tear.
THANK YOU!