DEVELOPMENT OF MONEY

1.0 INTRODUCTION

In this unit, you will learn of the development of money abinitio. The origin and evolution of money, types of money will be discussed, listing the qualities and functions of money in a modern economy.

2.0 OBJECTIVES

At the end of this unit, you shall be able to:

1.  State the origin money 
2.  Name the types of money 
3. List the qualities of money 
4.  State the functions of money 

3.0 MAIN CONTENT

3.1 Evolution of Money

The origin of money dates back to centuries spanning the existence man. Anyanwaokoro (1999: 6-10) discussed six major stages of monetary evolution 'which follows:

1. The era of-nospecialization 
2. The era of direct exchange (barter system). 
3. The era and commodity money 
4. The era of full-bodied money (currency notes and coins) 
5. The era of token money and credit money, and electronic cashier Motley era. 

We shall dices monetary evolution (origin) in the following stages: 

1.  The era of spherical adventure (nomadic) 
2. The era of subsistence (autarky or no exchange) 
3. The era of Barter system (direct exchange) 
4. The era of money exchange-commodity money (indirect exchange)
5.  The era of money exchange-full bodied money 
6. The era of token or credit money 
7. The era of e-money (electronic and cashless) 

The era of spherical adventure (nomadic) - 

this era was marked by the movement of man from one end of the earth to the other. At last, he discovered that most of the fruit seeds he had dropped in the past had germinated and grown into new fruits producing trees. This discovery marked the beginning of agriculture. The beginning of agriculture influenced ownership, possession and control. Thus, marked the end of this era and opened the door for the subsistence era.

The Era of subsistence (Autarky or No Exchange) 

The era of subsistence was marked by the simple ownership, possession and control of the natural resources. However, man discovered over time that whatever he personally owned, possessed and controlled in the expanding family could not be enough for him. This development gave rise to the emergence of direct exchange (the thought that he could have what others had in exchange for
his own) as discussed below. The Era of Barter system (Direct-Exchange) 

iii. - This era of barter system (direct exchange) 

was marked by the exchange of goods and services for goods and services within and among the
expanding families. The system had no room for any medium of exchange as the people exchanged the goods and services at their disposal with what the other party had for exchange. For instance, if a man who had a goat needed a bag of orange, he could directly exchange his goat for the bag of orange without recourse to any medium of exchange.

The barter system posed some problems which include the double coincidence of wants. The problem of double coincidence of wants arises in a situation where for example, Mr. Okeke who needed to take orange suddenly discovered that the orange seller
does not want" his cashew. The orange seller wanted mango. There is double coincidence of wants because Mr. Okeke will need to find somebody that hal 4991190 who needed cashew

1. This will enable him to get orange. The other problems of baiter system were storage, transportation, lack of standard for payment, etc. 
2. The Era of Money Exchange-Commodity money (Indirect Exchange) - This era actually came to resolve of the problems posed by the barter system. The barter system was characterized by problems of double coincidence of wants, storage, transportation, etc. Unlike the barter system, the money exchange-commodity money era identified and designated few commodities to serve as medium of exchange. The items used in different countries include cotton, grains, cattle, salt, oxen, slaves, cloth, sheep. In Rome, sheep was as a medium of exchange while slaves were accepted in Egypt. Some scholars argue that these commodities were accepted as the medium of exchange at this era because they were the most priced and sought after by the buyers of goods. Hence, people who had such designated commodities spent less time to have them exchanged for other commodities. 
3. The Era of Money Exchange - Full bodied Money Although the eras of money exchange - commodity money-the problem of double coincidence of wants of barter, it could other associated problems such as transportation of corn storage, etc. The era of money exchange-full bodied provided solution to some of the persistent barter system problems. Money exchange-full bodied money era was when metals and subsequently used as money. Iron was the first metal used. But with effluxion of time, gold, silver, copper were introduced to replace iron because the latter was prone to rusting and very bulky to convey from place to place. The gold was replaced by cheaper metals such as silver and copper. At this era, the face and intrinsic values of money equal. 

The paper money

The origin of paper, money (notes) could be traced to the goldsmiths of the middle ages in England. These Goldsmiths end held gold and other valuable deposits for merchants whom they issued warehouse receipts as evidence of the value and item held for them. The receipts issued by the Goldsmiths were mere bearer instruments that required the latter to oblige the bear to the value of the receipt.

 The Era of Token or credit Money

The Seventeenth Century England was characterized by sustained pressure on gold resources. The monetary authorities then were compelled to mint cheaper metals such as silver, copper for use as coins. They also printed paper money (fiduciary issue) that were not fully backed by gold. These notes that had little or no gold (commodity) backing are called token money. The intrinsic value of the money is represent any commodity is a good example of taken or credit money. Culbertson in Anyanwokoro (1999:12) said that credit money falls those two classes-those issued by the government (paper money) and those created by banks (bank notes and demand deposits).

The Era of E-Money (Electronic and Cashless)

The token or credit money era proceeds the present era of e- money - though the e-money era has not foreclosed the use of notes and coins, cheques and other credit instruments in transaction, it strictly de-emphasizes the use cash in making payments in both local and international transactions. E-money is simply the application of electronic devices to electronic devices to effect payments arising from business transactions without the use of cash.

In Nigeria, the concept of e-money was introduced in 1996 when the Central Bank of Nigeria granted approval to the then All States Trust Bank Plc to offer ESCA smart card product (Onyia and Egungwu, 2004:11). Even the developing economies of the world are predominantly trapped in poverty which compels them to operate cash based System; the emergence of a global system
is a matter of time.

Self assessment exercise

1. State the origin money 

3.2 Types of Money

The types of money may be discussed as follows:

1.  Commodity Money : Commodity money is that money represented by commodities such as grains, salt, cloth, slaves whose demand amongst other commodities are perfectly inelastic. These commodities served as the medium of exchange. 
2. Full - bodied money: Money is said to be full - bodied if its face and intrinsic values are equal. Commodities such" as grains, cloth, oil could not serve as full - bodied money because they cannot be converted into another state without loss in value and also the fact that they retained many shortcomings of the barter system. However, commodities such as copper, silver and gold are very good examples of full - bodied money. 
3. Pure Money: By pure money, we refer to the currency in circulation (notes and coins) plus bank deposits. Bank deposits include the money kept in savings, demand and time accounts. 
4.  Token Money: Token money is money that is acceptable to the masses on the strength of government imprints on it. Generally, the intrinsic value of -a token money is less than the face value. 
5. Fiat Money: Fiat money is simply an irredeemable and inconvertible money that derives its power to circulate from the government backing. We have said that money is "what the law says it is". This legal definition of money applies in the main to fiat money. That is to say that whatever the government of the clay designates as money in a system automatically becomes the legal tender. It could be a piece of cloth, piece of paper, etc. 
6. Quasi or near money: Quasi or near money are those money market instruments that can be easily converted into cash without loss in value. These include treasury bills, treasury certificate, etc. 
7.  Fiduciary Issues: Fiduciary issues as money do not have commodity or gold backing. They are acceptable as money on the belief that they are redeemable by the monetary authorities (government). 
8.  Convertible Money: Money is said to be convertible if it could be acceptable in any part of the world. Convertible money is an internationally acceptable currency that can be used to effect cross exchange transactions currencies such as the American Dollar, British Pound Sterling, Japanese yen are good example of convertible money. American dollar, British Pound Sterling, Japanese yen are good examples 

 Qualities/Characteristics of good Money

1. General Acceptability: One of the three major definitions of money insists that it must serve as a medium of exchange. Therefore, good money is that which must serve as a medium of exchange and be generally acceptable to people as a medium of exchange. Money in whatever denomination, colour; size, quality should be 'acceptable to the people at any time and place for the purpose of exchange of goods and\ or services 
2.  Divisibility: This is another good quality of good money. It simply means that the money is capable of being divided into various amounts and values without loss of value and time. Divisibility is made possible by the minting and printing an existing currency into various denominations. 
3. Durability: Money is used every second, minute and hour to effect payments all over the world. This exposes money to condition of continuous wear and tear. A good money should be durable in texture and composition to be able to weather the storm of wear and tear. 
4. Homogeneity: This implies that a fifty naira note used in Lagos state should be identical to the one used in Benue state of Nigeria. 
5.  Cognize-ability: This implies that the money should be capable of being recognized at any time, place by both the adults and children. For instance, any denomination of a country's currency should be recognized by simple sight and touch. 
6. Relative Scarcity: Money should be relatively scarce A thing that can serve as money must be worked for and not subject to pick as you wish phenomenon. 
7. Stable In Value: Despite the ever changing dynamics of the economy, money should be reasonably stable in value. Money is stable in value when its worth of note tied to the whims of inflation. 
8.  Portability: Money should be issued in convenient sizes and shapes to ease transfer from one place to another. 

3.4 Functions of Money

The Classical writers posit that money is demanded because of its use as medium of exchange. On the other hand, the Keynesian school argues the money is demanded because of its function as a store of value. Although the two schools of thought differ as to the reason why people demand money, they succeeded in identifying the two functions of money. The other functions of money are as standard for deferred payment and unit of account. Let us take them one at on time.

1.  Medium of Exchange - According to the classical writers, money primarily serves as a medium exchange thus eliminating the problems posed by the barter system. The fact that there's something that could be acceptable as a medium of exchange for goods and/or services created room for specialization. This is because people were sure that whatever they produced could be bought by others without any loss of time and value. 
2.  Unit of Account - The use of money to measure the worth or value of item is another primary function of money. As unit of account, money is a common numeric denominator to ascertain value, weight and Worth of an item say a house. The monetary equivalent of the house is simply the value of the house. It is on the basis of such established value that the house may be compared to another item or thing. 
3.  As a standard for deferred payment. Anything that serves as both medium of exchange and unit of account can easily be taken as a standard for deferred payment. The use of money as medium of exchange and an item through which the values of other items could be ascertained has given reason for people to enter into future contracts, bids, and agreements. This is because they are very hopeful that: (a) What they will receive in money will be acceptable as a medium of exchange (b) The value of the contract, bid, and agreement could determine in the present. 
4.  Store of Value - Imagine what could happen to a farmer who has just harvested all his commercial crops and would want to invest half of the value of the output on farm inputs for the coming season. The farmer will be in for trouble if he must store these harvests now so as to exchange them for farm tools in some months from hence. The harvests will obviously rotten and perish. 

The emergence of money has made it possible for such a farmer to dispose of the output to buy his farm tools whenever he desires. In this case; the farmer stores his value in money and not in perishable farm outputs.

Self assessment exercise

List the functions of money.

4.0 CONCLUSION

Before the advent of money, goods exchanged for goods – which is the term trade by barter. Money evolved from commodity to full- fledged money which had characteristic to serve as medium of exchange. This quality enabled it to function as money.

5.0 SUMMARY

At the end of this unit, you learnt to state the origin money, name the types of money, list the qualities of money and state the functions of money.

5.0 TUTOR-MARKED ASSIGNMENT

1. Name the types of money. 
2. List the qualities of money. 
3. State and explain the functions of money.