Unit ten. Money Text 1 From the History of Money

Before money, people could not buy and sell. There was trade; but it had to be two-way trade: people exchanged goods.

In primitive societies a system of barter was used. Barter was a system of direct exchange of goods. Somebody could exchange a sheep, for example, for anything in the market-place that they considered to be of equal value. Barter, however, was a very unsatisfactory system because people’s precise needs seldom coincided. People needed a more practical system of exchange, and various money systems developed based on goods which the members of a society recognized as having value. Cattle, grain, feathers, salt, elephant tusks and tobacco have all been used. Precious metals gradually took over because, when made into coins, they were portable, durable, recognizable and divisible into larger and smaller units of value.

There have been metal coins for thousand of years. Some of the earliest coins were used in Turkey and they were made of gold and silver. Metal coins were used by the Greeks thousands of years ago. The Greek drachma was made of silver. For hundred of years, it was the most common kind of money for trade in Europe and parts of Asia.

The Romans also used silver coins. Until the eighteenth and nineteenth centuries coins were given monetary worth based on the exact amount of metal contained in them, but most modern coins are based on face value, the value that governments choose to give them, irrespective of the metal content.

Coins can be heavy. In the late eighteenth and early nineteenth centuries, people did not want to carry large bags of coins with them, so they left the coins with traders. The traders gave them “notes”: these were just pieces of paper with a promise in writing to pay back the gold and silver coins. Soon people started to use the notes themselves as money. Later, governments began to control money. They made their own notes for people to use.

Text 2

Forms of Money

A great variety of commodities (wheat, salt, gold, and silver) has served at one time or another as a medium of exchange in economies based on the division of labour. This form of money is generally referred to as commodity money. At the same time other forms of money developed. They are referred to as credit money or money without material value because their value as a means of payment is greater than their intrinsic value. For instance, the paper on which a 100 banknote is printed is worth much less than the banknote’s face value. This is also true of most of the coins used nowadays. In addition to the notes and coins in circulation, ‘cashless’ means of payment were introduced.

These include checks, transfer orders and credit cards, which have become more and more popular in recent years. The progress made in computer technology has led to new forms of cashless payments. These forms of money which were mentioned above can be subsumed under the terms ‘cash or notes and coin’ and ‘deposit or giro money’.

Deposit or giro money is a form of money that has only gained great importance in the recent past. It is created by deposits held in banks on current accounts giro or sight deposit accounts on which the holder can draw at any time by check or giro transfer. In contrast to notes and coins, these are cashless means of payments, which are created by the banks themselves within the framework of cashless payment transactions by using deposits for lending.