Money is anything that is generally accepted in
exchange (substitute / Replace) of goods and services. Before the
evolution (development) of present form of money, Barter system was in
use. Goods or services are exchanged for other goods or services
are known as Barter system.
There are many disadvantages of barter system, and
they are, 1, difficulty for double coincidence (match) of wants, 2,
Problems of valuing goods, and 3, Problems of storing wealth. In barter
system the wants for one person can only be exchanged with the excess with him.
It is difficult to match the wants and excess at the same time with persons
dealing it. Difficult in Measuring or valuing of goods in terms of other goods
since there is no common standard of measurement. Services and
goods cannot be stored for a long time as such.
Value,
in economics, the worth of a commodity or service measured against other
commodities or services. The value of any object in the marketplace is
determined by desirability and scarcity. Anything that is both desirable and
scarce, such as a diamond, can command power in the exchange ratio—that is, it
can be exchanged for an item of equal or greater worth. A distinction is
usually made between market value and normal value. The value of
money must be stable so as to enable to make future payments of same
value. Value of money cannot be measured in terms of money; therefore it
is measured in terms of the price of other commodities that can be bought with
money. So the value of money can only be assessed through the price of
commodities. The tendency for prices to rise in general for all goods means the
value of money is falling. This situation is known as Inflation. Money
must be made in such a way that it is difficult to copy exactly in order to
deceive (cheat) people.
Market
value is the purchasing power of a commodity in the open market on a given day;
normal value is the value that would prevail if competitive forces worked
without friction. Market value may also be referred to as the exchange price of
a commodity, and natural value as the just price. The term value added refers
to the value created in a product in the course of manufacturing or processing,
exclusive of such costs as those of raw materials, packaging, or overhead.
Legal tender is defined as a legally valid currency
(in specified denominations) that may be offered in payment of a debt and that
a creditor must accept in redemption of a debt. Denomination of country's paper
currency and coins acceptable as legal tender varies from country to
country.
Before the evolution of the present form of money, people were using a wide varieties of commodities such as Tea leaves, Cowry shells etc. as medium of exchange. There after People started using Gold and silver as money because of its scarcity and intrinsic (inherent) value. These were “full bodied” money because the face value of the coin (money) is equal to the value of the metal used to make the money. The relative shortage led to the introduction of other metal coins such as Bronze, Copper, and Nickel etc. This token money made of metals are heavy and it was difficult to carry but still then it was in use for long period in the history. Wealthy merchants and traders leave their Gold and silver with goldsmiths for safekeeping when they go for business journeys. In exchange of this gold and silver they issue a receipt (notes) promising to pay an affixed amount of gold or silver deposited, on demand. These receipts (notes) are known as “fully backed” because the amount of gold or silver in the receipts are for the same value that they held in their safe vaults. These receipts are often used by the local trader to buy goods. In effect, these receipts were the forerunner of the present bank notes. The gold smiths realised that they could issue receipts (notes) in excess of the amount of gold or silver in their safe vaults. These types of issue of receipts (notes) are known as fractionally backed notes. Thereafter in the modern times the central banks of each country started issuing currency and notes for their country.
Before the evolution of the present form of money, people were using a wide varieties of commodities such as Tea leaves, Cowry shells etc. as medium of exchange. There after People started using Gold and silver as money because of its scarcity and intrinsic (inherent) value. These were “full bodied” money because the face value of the coin (money) is equal to the value of the metal used to make the money. The relative shortage led to the introduction of other metal coins such as Bronze, Copper, and Nickel etc. This token money made of metals are heavy and it was difficult to carry but still then it was in use for long period in the history. Wealthy merchants and traders leave their Gold and silver with goldsmiths for safekeeping when they go for business journeys. In exchange of this gold and silver they issue a receipt (notes) promising to pay an affixed amount of gold or silver deposited, on demand. These receipts (notes) are known as “fully backed” because the amount of gold or silver in the receipts are for the same value that they held in their safe vaults. These receipts are often used by the local trader to buy goods. In effect, these receipts were the forerunner of the present bank notes. The gold smiths realised that they could issue receipts (notes) in excess of the amount of gold or silver in their safe vaults. These types of issue of receipts (notes) are known as fractionally backed notes. Thereafter in the modern times the central banks of each country started issuing currency and notes for their country.
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