introduction to money

1. Prepared by;
Thabiti Mohamedi ally
Tutorial Assistant lecturer
Faculty of Business Administration
Muslim University of Morogoro
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2. money
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3. This lesson will cover the following
subtopics;
1) History of money
2) Meaning and types of money
3) Evolution of money
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4.  Interesting enough ,money often has no intrinsic
value, instead money is an object that has a value
placed on it which allow for the trade of goods and
services. Some money, such as metal coins ,has
an actual value in terms of materials used
.However paper money which is more common in
modern world and typically has no real value.
 Before money that we have in now days, people
were bartered for goods and services in the
system known as barter system.
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5.  Barter system, this was an act of trading goods or
services between two or more parties without the
use of money or monetary medium such as credit
cards.
 Example, one farmer might trade livestock for
vegetables while another may trade lumber for
livestock. These transactions were the early
building blocks of our modern economy and would
go on to create the future of money
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6.  Barter system was characterized by
several problems such as ;
i. Lack of double coincidence of wants
ii. Lack of common unity of value
iii. Difficulty of storage and transfer of
value
iv. Indivisibility of certain goods
v. Lack of standard for differed
payments
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7. Lack of double
coincidence of
value
It was so difficult and not an easy task to
make transaction during barter system
due to the difficult on meeting double
coincidence. If someone had a wheat flour
and want to exchange with salt, he had a
task of searching for a person who could
have a need of wheat flour and had a salt,
this made a single transaction to take a
time to be completed because of lack of
that situation of double coincidence.
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8. Lack of measure
of value
It was so difficult during the barter
system to measure the value of the
commodity, for instance if someone had
a goat and want to exchange with rice, it
was difficult to decide how many
kilograms of rice to be exchanged with
goat.
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9. Lack of store
of value
It was not easy to store the value of
perishable goods like milk, vegetable
and fruit for a long period of time in
order to meet the condition of double
coincidence, they were decaying and
their value diminished, but after the
invention of money, value stored
through selling them and money
obtained to be saved.
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10. Indivisibility of
commodities
It was not an easy task to divide
commodities into smaller parts, when
one goat did not resemble in value
with the five kilograms of salt, how
could a goat owner be able to divide it
in smaller parts in order to resemble in
value with the five kilograms of salt for
the exchanging process to take place?
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11. Lack of standard of
deferred payment
Under the barter system, it was very
difficult to have a standard which
would govern a deferred payment
(future payment), the borrowing and
lending was made in terms of goods.
It was difficult to decide which
amount to be returned back in future.
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12.  Limitations of barter system led to the creation of
currency or monetary system which later on
resolved all problems associated with the barter
system as already discussed
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13.  Money; refers to the any thing that is generally
accepted as payment for goods and services or in
the settlement of debts
 Using money allows buyers and sellers to pay less
in transaction costs compared to barter trading
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14.  Money needs six desirable properties for people and
businesses to use money, which are;
i. Acceptable: This means that every one must be able to
accept the money for transactions without any
hesitations
ii. Durable: money should be durable enough to retain its
usefulness for many, future exchanges .
iii. Divisible: This means that money can be divided into
small units that can be used for exchange for goods and
services
iv. Uniformity: This means that all types of the same
denomination must have the same purchasing power
v. Portable: This means that money should be easy to be
carried from one place to another place for transaction
vi. Limited supply: For the money to retain its worth there
must be a limited supply .The more the money in
circulation the less it is valued
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15.  Money serves four key functions in the economy
which are as follows;
1. It acts as medium of exchange
2. It is a unit of account
3. It acts as a store of value
4. It offers a standard of differed payment
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16. Medium
of
exchang
e
If you are a teacher or an accountant, you
are paid money for your services. You then
use that money to buy goods and services.
You essentially exchange your teaching or
accounting services for food, clothing, rent,
and other goods and services. But unlike with
barter, where goods and services are
exchanged directly for other goods and
services, the exchanges you participate in
involve money.
Money is providing the service of a medium
of exchange. That is, money is the medium
through which exchange takes place.
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17. Unity of
accoun
t
A way of measuring value of goods
or services in an economy in terms of
money .
Instead of having to quote the price of
a single good in terms of many other
goods as is the case with barter trade
.
Each good has a single price quoted
in terms of the medium of exchange
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18. Store
of
value
Money allows value to be stored
easily, thereby providing the service of
a store of value. you can’t move with
your house upon a short notice of
being transferred to a new job place,
but you have to sell your house in a
price equivalent to its value and have a
new one to your destination ,even
though prices are not stagnant
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19.  People since the dawn of civilization created
payment systems. Thus, money facilitates
business transactions, and the payment system
becomes the mechanism to settle transactions.
First and oldest payment system is commodity
money .But the following are the forms of money
that have been used in the economy since then up
to date
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20. 1. Commodity money. This form of money is related to
a barter system in which goods and services are
directly interchanged for other goods or services.
The significant of commodity money is that its value
is described by the actual value of commodity its self
.Examples of commodity money were, gold coins,
silver, shells, spices, beads etc.
2. Fiat money. this is the type of paper money, its the
money which has a face value more than its real
value. the actual value of money is worthless ,its
accepted by the people on the order the government
 The real value of fiat money is not equal to its face
value, and it can be paper or any other commodity
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21. 3. Metallic money. These are pieces of metals like
gold, silver, copper, bronze, which were used in
ancient as well as current time .The value of
these in exchange of goods is equivalent to their
intrinsic value.
4. Paper money. These are bank notes and
government notes which are used as money
 There are other types of money as categorized
depending on several criteria and these are;
 money equivalents (cheque ,credit cards),legal
tender money, optional money(bill of exchange,
promissory notes)
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22.  Some of the major stages through which money
has evolved are as follows;
a) Commodity money
b) Metallic money
c) Paper money
d) Credit money
e) Plastic money
f) Electronic money
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23. Commodity
money
In the earliest period of
human civilization
,any commodity that
was generally
demanded and
accepted was chosen
and used as money
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24. Metallic
money
With progress of human
civilization ,commodity money
changed into metallic money.
Metals like gold ,silver copper,
were used as money since
they could be handled easily
and their quantity can be
easily ascertained
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25. Paper
money
It was found inconvenient as well as
dangerous to carry gold and silver
coins from place to place. so the
invention of paper money marked a
very important stage in the
development of money.
 paper money is regulated and
controlled by the central bank of the
country
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26. Credit
money
 Emergence of credit money took
place almost side by side with that
of paper money. People keep a
part of their cash as deposit with
banks which they can withdraw at
any time through cheques.
 The cheque (credit money or
bank money) its self is not money
but it performs the same functions
as money.
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27. Plastic
money
The latest type of money is
plastic money is plastic money
inform of credit cards (visa cards,
Mastercard) and debit cards .It
aims on reducing the needs for
cash to make transactions
Credit card is a small plastic card
issued by a bank or business
owner allowing the holder to
purchase goods or services on
credit
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28. Electronic
money
 Electronic money (e-money) refers
to the money that is exists in banking
computer systems that may be used
to facilitate electronic transactions .
 The value of electronic money
maybe backed by fiat currency and
be exchanged into physical, tangible
form
 Example of electronic money
method is PayPal.
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29. 1. Briefly explain why do we need money
?
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