THE STORY OF MONEY

                                     THE STORY OF MONEY 

HELLO FRIENDS TODAY WE GOING TO TALK ABOUT HISTORY AND HOW MONEY EVOLVED AS PER TIME AND WHAT WERE THE MERITS ,DEMERITS AND REASON TO CHANGE IN ALL SYSTEM AS PER TIME 

WHAT IS MONEY

"Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context."

Money in and of itself, has no actual value; it can be a shell, a metal coin, or a piece of paper. Its value is symbolic; it conveys the importance that people place on it. Money derives its value by virtue of its functions: as a medium of exchange, a unit of measurement, and a storehouse for wealth.

Money allows people to trade goods and services indirectly, it helps communicate the price of goods (prices written in Rupees and paisa correspond to a numerical amount in your possession), and it provides individuals with a way to store their wealth in the long term.

The concept of money has remained the same, but the face has changed. From using the barter system where commodities and services are used as money to hundreds of different types of currencies, we have come a long way. Let’s take a look down the road to see how we got here.

 

                  The Barter System

This is the one thing about the history of money that we all probably know. Up until about 3000 years ago, humans used the barter system for the exchange of goods and services. Bartering is a direct trade of goods and services; for example, a farmer may exchange a bushel of wheat for a pair of shoes from a shoemaker. However, these arrangements take time. If you are exchanging an axe as part of an agreement in which the other party is supposed to kill a woolly mammoth, you have to find someone who thinks an axe is a fair trade for having to face down the 12-foot tusks of a mammoth. If this doesn’t work, you would have to alter the deal until someone agreed to the terms.

 

Bartering is also terribly inefficient as it requires a double coincidence of wants . for example ,you pay me in eggs and I teach you economics,you need to find someone who needs exactly the opposite trade that is teach economics in exchange of eggs.

MERITS

Since direct barter does not require payment in money, it can be utilized when money is in short supply, when there is little information about the credit worthiness of trade partners, or when there is a lack of trust between those trading.Barter is an option to those who cannot afford to store their small supply of wealth in money, especially in hyperinflation situations where money devalues quickly

Demerits

The limitations of barter are often explained in terms of its inefficiencies in facilitating exchange in comparison to money.It is said that barter is 'inefficient' because:

• There needs to be a 'double coincidence of wants'

For barter to occur between two parties, both parties need to have what the other wants.

• There is no common measure of value

In a monetary economy, money plays the role of a measure of value of all goods, so their values can be assessed against each other; this role may be absent in a barter economy.

• Indivisibility of certain goods

If a person wants to buy a certain amount of another's goods, but only has for payment one indivisible unit of another good which is worth more than what the person wants to obtain, a barter transaction cannot occur.

• Lack of standards for deferred payments

This is related to the absence of a common measure of value, although if the debt is denominated in units of the good that will eventually be used in payment, it is not a problem.

• Difficulty in storing wealth

If a society relies exclusively on perishable goods, storing wealth for the future may be impractical. However, some barter economies rely on durable goods like sheep or cattle for this purpose.

Asian Create Object That Resembles Modern Day Coin

It was very tedious and inefficient to carry around
and 12-foot tusks of mammoths to deal with people. The first observed proto-money took the form of collectibles. Collectibles were small, mostly homogenous items such as shells or beads. Collectibles tended to be durable, easy to store or hide on one’s person, difficult to find or forge, and easy to appraise in value. This made them more robust forms of money relative to many commodity forms of money like cattle.

METAL COINS

Although the ASIANS were the first to use coins, the first region of the world to use an industrial facility to manufacture coins that could be used as currency was in Europe, in the region called Lydia (now western Turkey). Today, this type of facility is called a mint, and the process of creating currency in this way is referred to as minting.

In 600 B.C., Lydia's King Alyattes minted the first official currency. The coins were made from electrum, a mixture of silver and gold that occurs naturally, and the coins were stamped with pictures that acted as denominations. In the streets of Sardis, in approximately 600 B.C., a clay jar might cost you two owls and a snake. Lydia's currency helped the country increase both its internal and external trading systems, also spread quickly through the Mediterranean which encouraged trade across borders. Governments also accepted this system quickly as it made the collection of taxes and maintenance of the army much easier.

In the Indian subcontinent, Sher Shah Suri (1540–1545), introduced a silver coin called a rupiya, weighing 178 grams. Its use was continued by the Mughal rulers.The history of the rupee traces back to Ancient India circa 3rd century BC. Ancient India was one of the earliest issuers of coins in the world, along with the Lydian staters, several other Middle Eastern coinages and the Chinese wen. The term is from rūpya, a Sanskrit term for silver coin, from Sanskrit rūpa, beautiful form.

The imperial taka was officially introduced by the monetary reforms of Muhammad bin Tughluq, the emperor of the Delhi Sultanate, in 1329. It was modeled as representative money, a concept pioneered as paper money by the Mongols in China and Persia. The tanka was minted in copper and brass. Its value was exchanged with gold and silver reserves in the imperial treasury. The currency was introduced due to the shortage of metals.

LETTER OF CREDIT

As trading became easier, the financial system also grew. Banks were set up and money borrowing and lending became increasingly common. When someone lent money from a bank, instead of giving out coins, banks started giving out pieces of paper that ensured that the holder would receive a particular amount of money when he/she would produce it at the bank. These were called letters of credit.

These letters of credit were transferable, so in case of a very popular bank/moneylender (like the government), the payment for a certain service could be made using the credit paper. However, these were issued by banks and not governments. This method carried on for centuries and governments started issuing their own bonds.

PAPER MONEY

By 1271, when Marco Polo — the Venetian merchant, explorer, and writer who traveled through Asia along the Silk Road visited China, he found that the Chinese were already using paper currency. In fact, the emperor of China had a good handle on both the money supply and various denominations. There are records suggesting that the Chinese moved to the paper currency as early as 700 BC.In fact, in the place where modern American bills say, "In God We Trust," the Chinese inscription at that time warned: "Those who are counterfeiting will be decapitated."

However, banks eventually started using paper banknotes for depositors and borrowers to carry around in place of metal coins. These notes could be taken to the bank at any time and exchanged for their face value in metal–usually silver or gold–coins. This paper money could be used to buy goods and services. In this way, it operated much like currency does today in the modern world. However, it was issued by banks and private institutions, not the government, which is now responsible for issuing currency in most countries.The first paper currency issued by European governments was actually issued by colonial governments in North America. Because shipments between Europe and the North American colonies took so long, the colonists often ran out of cash as operations expanded. Instead of going back to a barter system, the colonial governments issued IOUs that traded as a currency. The first instance was in Canada (then a French colony). In 1685, soldiers were issued playing cards denominated and signed by the governor to use as cash instead of coins from France

GOLD STANDARDS

The gold standard was originally implemented as a gold specie standard, by the circulation of gold coins. The monetary unit is associated with the value of circulating gold coins, or the monetary unit has the value of a certain circulating gold coin, but other coins may be made of less valuable metal. With the invention and spread in use of paper money, gold coins were eventually supplanted by banknotes, creating the gold bullion standard, a system in which gold coins do not circulate, but the authorities agree to sell gold bullion on demand at a fixed price in exchange for the circulating currency.

Lastly, countries may implement a gold exchange standard, where the government guarantees a fixed exchange rate, not to a specified amount of gold, but rather to the currency of another country that uses a gold standard. This creates a de facto gold standard, where the value of the means of exchange has a fixed external value in terms of gold that is independent of the inherent value of the means of exchange itself.

However, after the Great Depression, the United States abandoned the gold standard which would allow the government to print more money to infuse cash in the markets. Slowly, other countries followed suit and the Gold Standard was abandoned. The difference that this made was that the value of a particular currency was no longer defined by how much gold the country’s government had in its reserves.

YEAR 1971

In 1971, United States President Richard Nixon announced that the US dollar would not be directly convertible to Gold anymore. This measure effectively destroyed the Bretton Woods system by removing one of its key component, in what came to be known as the Nixon shock. Since then, the US dollar, and thus all national currencies, are Free-floating currencies.Additionally, international, national and local money is now dominated by virtual credit rather than real bullion.

          TO BE CONTINUED