1.2 History of Money

  • Origin
    • Latin "Moneta" (surname of Roman Goddess Juno)
    • Usage depends on human civilization (changed to variety of forms)
  • Evolution
    • Hunting tribes: animal skin
    • Agro society: wheat
    • Pastoral society: cattle
    • Greek society: coins
    • (in their own forms)
  • Stages
    1. Commodity money: Axes, spears (hunting). Squirrel Skins (Mongolians). Cattle and salt (Romans). Tobacco, tea, shells etc.
      • Problem: Different commodities were not similar
    2. Metallic money: silver, gold, copper
      • Problem: Accept, weigh, divide, evaluation
      • Solution: Pre-weighed coins
      • Another problem: Circulation of lower quality coins => Hoarding of finer coins (chipping corners of coins)
      • Problem: Unsafe for transfer
    3. Paper money
      • Origin: Goldsmiths (known for their honesty, Trustworthy, started using Receipts, a promise of returning their gold )
      • Substitute of money
      • Creation of banknotes by the country's State bank
      • Abandonment of metal-convertability WWI
    4. Credit Money
      1. Cheques: single use
      2. Bank notes: small transactions vs cheques: larger transactions
    5. Near money
      • Bills of exchange, treasury bills, bonds (very liquid so close substitutes)
  • Types of money
    1. Commodity money: has an intrinsic value
      • Gold, silver, tobacco, cocoa (value determined by quality and quantity)
    2. Metallic money: Obsolete due to paper money
    3. Paper money: Currency made using paper (bank notes and bills).
      1. Backed by the central bank.
      2. Value based on trust in issuing authorities
    4. Credit Money
      1. Initiation of lending and borrowing
      2. extension of credit and issue debt.
      3. Access to finances without securities
      4. Encourages business innovation. And any bank facing financial challenges can be helped
    5. Fiat Money
      1. Government-issued currency (rupee)
      2. not backed by tangible assets
      3. Value due to trust in the government (issuing authority)
    6. Near money
      1. Financial instruments: Treasury bills, bonds
      2. Non-cash assets (highly liquids).
      3. Aka Quasi-money or Cash equivalents
    7. Digital Money
      1. Purely in Electronic Form
      2. Exchanged using digital systems using the internet
    8. Cryptocurrency
      1. Digital or virtual money secured by encryption
      2. Operates on decentralized networks using blockchain technology
      3. Bitcoin, Ethereum