Transcript EVOLUTION OF MONEY

MONEY FOR VALUATION!!!
The unit for measuring love is Goat – Commodity Money????
 Goat is an animal of the sheep family
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Spouse is your Husband or Wife
EVOLUTION OF MONEY
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Money was developed according to needs &
Requirements.
Main aim was to remove the shortcomings of
the Barter System.
DIFFERENT STAGES OF
EVOLUTION OF MONEY
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5.
COMMODITY MONEY
METALIC MONEY
PAPER MONEY
CREDIT MONEY
ELECTRONIC MONEY
1. COMMODITY MONEY
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When different commodities were used as a medium
of exchange (BARTER SYSTEM)
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Cow Heads, Goats, Axes, Dried Fishes etc were
used as medium of exchange.
1. COMMODITY MONEY
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Barter System had different problem like:
Storing Problem
Durability problem
Transportation problem
Divisibility problem
2. METALLIC MONEY
The next step in the evolution was the discovery
of precious metals like Gold, Silver, Copper.
“ Metallic Money consist of coins made of
Gold, Silver, Copper or nickel as a mode of
payment.”
2. METALLIC MONEY
UnCoined Metals
 Metals were not used as a coin but as a Bullion.
 This created the problem of measuring the
weight & Value.
 Supply of money also became problem when the
mines were fully used up or new mines were
discovered.
 Transportation & Storage problem were also
there.
2. METALLIC MONEY
Coined Metals.
 As a next step, standard coins were created.
 They had a standard weight & value.
 Problem of un coined metals started here as
well.
2. METALLIC MONEY
Metallic money can be:
FULLY BODIED
Whose Face Value is equal to the value of
metal contained in it.
TOKEN MONEY
Its Face Value is Higher than Intrinsic Value
(Value of Metal)
3. PAPER MONEY
3. PAPER MONEY
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When paper currency was introduced as a mode
of payment.
Originated as a receipt issued by Goldsmiths.
These receipts were then later on used for
payments.
Difference in the value of receipts was
becoming a problem then.
3. PAPER MONEY
PAPER MONEY
 Refers to the Notes issued by the State or by
the Bank, usually the Central bank.
 Paper Money can be:
1. Representative Paper Money.
2. Convertible Paper Money.
3. Fait Paper Money.
3. PAPER MONEY
Representative Paper Money.
It is that money which is fully backed by equivalent
metallic reserves.
Convertible Paper Money
Which is convertible into coins on demand.
Fait Paper Money
Which is not redeemable or convertible into Gold or
Silver on demand. It is accepted because it is declared
legal tender by the issuing authority and has general
acceptance as a medium of exchange. The intrinsic
value of Fait money is Nil.
4. CREDIT MONEY
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Includes Bank money (different instruments
offered by the Banks.)
Cheques, Drafts, P.O, T.C are examples.
Convenient, Safe and easily convertible into
cash.
Its like Near Money.
5. ELECTRONIC MONEY
5. ELECTRONIC MONEY
Electronic money (also known as e-money,
electronic cash, electronic currency, digital
money, digital cash or digital currency) refers
to money or scrip which is exchanged only
electronically. Typically, this involves use of
computer networks, the internet and digital
stored value systems.
CHARACTERISTICS OF MONEY
CHARACTERISTICS OF MONEY
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General Acceptability.
Stability of Value.
Transportability.
Storeability.
Divisibility.
Homogeneity.
Cognizability.
Malleability.
LEGAL TENDER.
“ Means of payment, which has state’s sanction
behind it and can be used to settlement of
Debt obligations”
 Debtor can compel creditor to accept it.
1. Unlimited Legal Tender.
2. Limited Legal Tender.
LEGAL TENDER.
Unlimited Legal Tender.
 Money in terms of which debt can be legally
paid up to any amount.
 All type of Currency Notes.
Limited legal tender.
 Money in which debt can be paid to a certain
limit.
 50 Paisa Coins.
MEASURING MONEY
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Changes in the amount of money in the
economy are related to changes in Interest rates,
Economic Development & Inflation.
Inflation: rise in price level; makes the value of
the money less.
Measured by Money Aggregates M1, M2, M3.
MEASURING MONEY
M1:
 Currency and checkable Deposit Accounts and other bank
money instruments.
 Most Liquid assets of a Financial System.
M2:
 M1 + Those assets which can’t be used directly as a mode of
payment and converted into currency.
 Small denomination Time deposit etc.
M3:
 M2+ Long term investments.
 Assets which are important to large institution and not to
individuals.
MEASURING MONEY