Independent reading

Introduction

To improve and develop better professional competences

an economics faculty student learning English should be introduced to

historical and cultural background of major economic events and

phenomena. Undoubtedly, this will contribute to shaping him/her into a

broad-minded specialist.

The texts below are concerned with the history of money and

banking. When tested by the teacher on independent reading the student

should be prepared to comment on the information that is new and

interesting to him/her.

TEXT 1

Read the text for the specific information that will enable you to

answer in English or in Russian the following questions:

1. Why some commodities were used as money in the past? Are

they used as money in the modern world?

2. Why “clipping” and “sweating” money was practiced in

Europe? What method was used to prevent this dishonest

practice? Who invented this method?

3. What is the basic difference between “representative” and

“fiat” money?

4. Why do you think John Law became hated in France?

5. Could you agree with the statement that “fiat money” is

dangerous to the global economy? If yes, why? Does

fiat money have bad effects on people?

For better understanding consult HISTORICAL and VOCABULARY

NOTES below the text. Make use of an ABBYY Lingvo (or any other)

electronic dictionary or the LANGUAGE TRANSLATION

SOFTWARE on your computer. Remember: the use of any machine

translation (MT) system requires post editing.

A General History of Money

1. Barter exchange and commodity money

The early history of money begins with barter trade. Barter is actually a

system of exchanging goods and services for other goods and services

rather than using money.

Salt and spices were used as commodity money. . Commodity money is money whose value comes from a commodity out of which it is made. Many early instances of money were objects which were useful for their intrinsic value as well as their monetary properties.

Accepting salt from a person was synonymous with receiving a salary. Commodity money has been used for hundreds of years before Christ, and several centuries thereafter. Being a valuable commodity, pepper has naturally been used as payment. In the Middle Ages, there was a French saying, 'As dear as pepper'. In England, rent could be paid in pounds of pepper.

Even in the modern world, in the absence of other types of money, people have occasionally used commodities such as tobacco as money. This happened on a wide scale after World War II when cigarettes became used unofficially in Europe, in parallel with other currencies, for a short time. It also occurs in some remote parts of countries such as Colombia and Bolivia, where cocaine is used as commodity money.

2. Coins and Paper Money

Metal objects were introduced as money around 5000 B.C. Metals like gold and silver have been used as commodity money for thousands of years, being in the form of metal dust, rings, bracelets and assorted pieces. Eventually people began coining gold and silver around 560 BC. Countries were soon minting their own coins with specific values. Since coins were given a certain value, it became easier to compare the cost of trade items people wanted to buy or sell.

One of the first coins were produced by the use of hammering. Hammered coins were produced by placing a blank piece of metal of the correct weight between two dies, and then striking the upper die with a hammer to produce the required image on both sides.

As it was difficult to produce coins of a regular diameter, coins were likely to suffer from "clipping" because very often dishonest people would remove slivers of precious metal, thereby getting metal to make more money To prevent “clipping” Sir Isaac Newton, after being appointed Master of the Mint , was the first to have used the method of making coins with serrated edge, to discourage "clipping".

Coins were also vulnerable to "sweating," which is when silver coins would be placed in a bag that would be vigorously shaken. This would produce silver dust, which could later be removed from the bag to make more silver coins.

Hammered coins gradually became obsolete. They were replaced by milled coins. France became the first country to adopt a full machine-made coin in 1643. In England, the first non-hammered coins were produced in the reign of Queen Elizabeth I in the 1560s.

Some of the earliest known paper money dates back to China, where the issue of paper money became common from about AD 960 onwards. With the introduction of paper currency, commodity money gradually changed into representative money. This meant that what money itself was made of no longer had to be very valuable.

Representative money was backed by a government or bank's promise to exchange it for a certain amount of silver or gold. For most of the nineteenth and twentieth centuries, the majority of currencies were based on representative money. But the system was not stable. Stability came into the system with national Banks guaranteeing to change money into gold at a promised rate. However, it did not come easily. The Bank of England risked a national financial catastrophe in the 1730s when customers demanded their money be changed into gold in a moment of crisis. Eventually London's merchants saved the bank and the nation with financial guarantees.