Text study

History. The use of money is as old as the human civilization. Money is basically a method of exchange, and coins and notes are just items of exchange. But money was not always the same form as the money today, and is still developing.

Why did people start using money? At first people bartered, which means they exchanged things they had for things they needed. Subsequently both livestock, particularly cattle, and plant products such as grain, come to be used as money in many different societies at different periods. Aztecs used cacao beans. Norwegians once used butter. The early U.S. colonists used tobacco leaves and animal hides. Oman soldiers were paid a «salarium» of salt. On the island of Nauru, the islanders used rats. Human slaves have also been used as currency around the world. In the 16th century, the average exchange value of a slave was 8000 pounds of sugar.

Gradually, however, people began exchanging items that had no intrinsic value, but which had only agreed-upon or symbolic value. An example is shell. Metal tool money, such as knife and spade monies, was also first used in China. These early metal monies developed into primitive versions of round coins at the end of the Stone Age. Chinese coins were made out of copper, often containing holes so they could be put together like a chain. The first government to make coins that looked alike and use them as money was probably the city of Lydia in Ancient Greece.

The coins were made from a mixture of gold and silver. But they were heavy and difficult to carry, and the cities and the roads of Europe were dangerous places to carry 1700s, France’s government became the first in Europe to make paper money – banknotes or bills they say in U.S. But paper money, as well as first coins ever, was invented in China, where traveler Marco Polo saw it in the 1280s.

The Bank of Sweden issued the first paper money in Europe in 1661, though this was also a temporary measure. In 1694 the Bank of England was founded and began to issue promissory notes, originally handwritten but later printed. To make travelling with gold less dangerous, goldsmiths, or people who made jewelry and other items of gold, came up with an idea. The goldsmiths started writing out notes on pieces of paper that said the person who had the note could trade the note in for gold. These promissory notes were the beginning of paper money in Europe. If you look at a British bank note today, you’ll see it still says: I promise to pay the bearer on demand the sum of twenty pounds.

Now people carry plastic cards instead of cash. With your credit card you can take money from the cash-machine any time you need it. Banknotes of different countries show queens and presidents or other famous people. But you may also find a tiger or elephant (India), cows and fruit (Nigeria), a map (Norway), or even schoolchildren (Taiwan).

People travelling to other countries usually need to convert (change) their money into local currency. For that an exchange rate is used.

The functions of money. All values in the economic system are measured in terms of money. The value of money is basically its value as a medium of exchange or as economists put it, its «purchasing power». This purchasing power depends on supply and demand. The demand for money is reckonable as the quantity needed to effect business transactions. The demand for money is related to the rapidity with which business is done.

The supply of money is the actual amount in notes and coins available for business purposes.

If too much money is available, its value decreases. This condition is known as «inflation».

The role of money depends on the state of development of an economy.

Money performs the function of a medium of exchange or means of payment with goods being exchanged for money and money for goods. At the same time it also acts as a unit of account.

Money is a store of value, as part of an individual’s income may be set aside for future consumption. Money is a means of making deferred payment. This important function of money is very important in the modern world where so much business is conducted on the basis of credit.

The most important types of money are commodity money, credit money and fiat money. The value of commodity money is about equal to the value of the material contained in it. The principle materials used for this type of money have been gold, silver and copper. Credit money are documents with promises by the issuer to pay an equivalent in the standard monetary metal. Fiat money is paper money the value of which is fixed by the government.

Banknotes are usually made from special high-quality paper with watermarks, metallic strips and other features against forgery.