Evolution and Function of Money

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Evolution and Function of Money

  1. 1. Evolution and function of money
  2. 2. Contents:Evolution of moneyClassification of moneyFunction of money
  3. 3. Evolution of money: Barter system Commodity money Paper money Demand deposits E-money
  4. 4. Barter system:Direct exchange of goods and services for other goodsand servicesDifficulties 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.
  5. 5. Commodity money:Commodity money is money whose value comes froma commodity of which it is made. Commodity moneyconsists of objects that have value in themselves aswell as value in their use as money
  6. 6. Paper money:Paper currency that is circulated for transaction-related purposes. The printing of paper money istypically regulated by a countrys centralbank/treasury in order to keep the flow of money inline with monetary policy.
  7. 7. Demand deposits:Demand Deposit refers to a type of account held atbanks and financial institutions that may bewithdrawn at any time by the customer. The majorityof such Demand Deposit accounts are checking andsavings accounts.
  8. 8. E-money:All types of money which people deal with itelectronically, far from traditional ways of paymentlike banks, cheques, paper money and coins, e-Moneyallow users through internet or wireless devices to paythe charges of their purchases directly from their bankaccounts by electronical ways such as Smart cards,Digital wallets and micropayments
  9. 9. Classification of money: Metallic money: Standard moneyFace value = Hidden value Token moneyFace value >Hidden value Subsidary moneypayment cannot exceed more than 25in coin. Paper money1. Representative moneySlip issued agaisnt commodities andmetals which was used as money1. Convertible paper moneySlip issued against gold where faceand hidden values was equal1. Inconvertable paper moneywe cannont change from reserve asface value less than hidden value.1. Fiat moneyColour Money issue during anyemergancy to over come the deficitand it become useless after thatemergancy.
  10. 10. Legal tender and non legal tender money Legal tender money Issued by the central bank People has trust Limited and unlimited legalmoney Non legal tender money It is not generally accepted It is optional money because itis in form of cheques ATM’s
  11. 11. Functions of money:Primary functions1. Medium of exchange2. Unit of accountSecondary functions1. Store of value2. Standard of dafer payments3. Easy transfer of value
  12. 12. Primary functions:Medium of exchange Generally acceptable. Removed the needs of doublecoincidence of wants. Remove the difficulties of bartersystem. Make transaction on time atany place. Works as intermediary betweenlabor and production toincrease output.Unit of account Standard monetary unit formeasurement of goods servicesand assets. It is a common denominatorwhich determines the rate ofexchange between goods andservices. It is used to check profit lossand liabilities.
  13. 13. Secondary functions:Standard of deferredpayments:Store of value: Transfer of value:Debt are easily returnback with the same valueof moneyMake possible contractsfor goods and servicesagainst the bond andsecuritiesFixed debt contractseliminate the gain or loss ofcreditor and debtor.Works as bridge betweenpresent and future value ofwealth.It is used to meetunforseen emergency andto pay debt.Equally chances of gainand loss because it isincluded bonds securitiescommercial papers.Money has ability totransfer value one personto other person easily atany place.

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