MONEY

BASIC FUNCTION OF MONEY

• facilitate the exchange of goods and
services
 BARTER
• Exchange of goods without the use of
money
DIFFICULTIES OF BARTER
• Barter tends to slow down trade.
• Barter is difficult because of the lack
of double coincidence of wants.
• Barter is also difficult due to the lack
of proper way to equate the values
of the things exchanged.
• Barter is likewise difficult because of
the indivisibility of some goods.
 The Birth on use of
Money
• 3000 BC – earliest signs of the use of
money (stamped in metal bars)
• 7th Century BC – earliest known
coins
• China – earliest country to use paper
money (7th Century AD)
• Europe – paper money first came into
use when merchants issued receipts
for the gold and other precious
things left with them for safekeeping.
 DEFINITION OF MONEY
• Legal:
– Money is what the law says it is.
• Functional:
– Money includes all things that perform
the functions of money and excludes all
others.
 Traditional Characteristics
of Money
• Utility
• General Acceptability
• Portability
• Uniformity/Homogeneity
• Malleability
• Divisibility
• Cognizability
• Durability
 Functions of Money
1. As a medium of exchange
2.As a standard of value
3.As a store of value
4. As a standard of deferred
payment
5.As a reserve or guaranty for
solvency
 Classification of Money
• The physical characteristics of the
materials of which money is made.
• The nature of the issuer, such as a
government, central bank,
commercial bank.
• The relationship between the value
of money as money and value of
money as a commodity.
 Classification of Money
• Full-bodied Money
• Representative Full-bodied Money
• Credit Money
 Forms of Credit Money
• Token Coins
• Representative Token Money
• Circulating Promissory Notes Issued By
Government
• Promissory Notes Issued By Private
Banks
• Circulating Promissory Notes Issued By
Central Banks
• Checking Deposits At Banks
• Electronic money
 Durability
• Money would have to
withstand the normal wear
and tear.
 standard of deferred
payment
• Money serves as a basis or
measurement for future debt
contracts.
Representative Full-bodied
Money
• a circulating warehouse receipt for
full-bodied coins or their equivalent
in bullion.
 Circulating Promissory
Notes Issued By
Central Banks
• The largest part of the hand-to-hand
currency that is used in the most
advanced countries is in the form of
circulating promissory notes issued
by central banks.
 Gresham’s Law
• “Bad money drives good money out
of circulation”
 Full-bodied Money
• money whose value as a commodity
for non-monetary purposes is a great
as its value as money.
Uniformity/Homogeneity
• Money is standard and uniform metal
or paper form to avoid confusion.
 centavos
• one hundred equal parts of Peso
 China
• earliest country to use paper money
 Goldsmith’s receipts
• proof of ownership that were
circulated as money in Europe
 Indivisibility

Barter is likewise difficult

because of the
______________of some
goods.
 Legal Definition of
Money
• Money is what the law says it is.
 a standard of value
• Measures the values or utilities of the
objects exchanged through the
pricing system.
 General Acceptability
• Common usage of it would allow the
object to transfer from one hand to
another without question of its origin.
 Checking Deposits At
Banks
• Bank debts payable on demand and
are claims of creditors against a bank
which can be transferred from one
person or firm to another by means
of checks or other orders to pay.
 Utility
• Could be used not only as money but
in its own original form.
 Barter
• Exchange of goods without the use of
money
 Medium of Exchange
• Money allows the presence of double
coincidence.
 Credit Money
• any money, except representative
full-bodied money, that circulates at
a value greater than the commodity
value of the material from which it is
made
 Cognizability
• The commodity used as money
should be easily recognized.