Introduction to Money

1. History of money
2. Nature of money
3. Forms of money
4. Functions of money
5. Roles of money

Financial & money market principles

Prepared by Phan Huy Tam – Finance & Banking Dept - UEL
 Development of money through the human history

1. History 2. Nature 3. Forms 4. Functions 5. Roles 2

 What could be consider as money

• Widely accepted as a mean of payment

• Easily converted to used mean of payment with little lost in value

Cash Checking account Saving account Gold bar watch

1. History 2. Nature 3. Forms 4. Functions 5. Roles 3

 Digital currency
Digital currency is a form of currency that is available only in digital or electronic form. It is also called
digital money, electronic money, electronic currency, or cybercash.

1. History 2. Nature 3. Forms 4. Functions 5. Roles 4

 Characteristics of money

Value
Stability

Ease of
Transferable
recognition

Divisibility

Ease of carry Scarcity

Consistency

1. History 2. Nature 3. Forms 4. Functions 5. Roles 5

 Based on value
Real money: has full intrinsic value, circulates because
of its own value
Example: gold or silver coin, if the cost of gold and
silver mining, the cost of minting gold and silver coins
change, then the intrinsic value of gold and silver
changes, so its exchange value also changes.
Credit: not circulates based on its intrinsic value, but
because of its trust, social or statutory conventions
towards itself.
Example: banknotes, coins minted of common metals
such as copper, aluminum, zinc... Exchange value is
separate from intrinsic value.
1. History 2. Nature 3. Forms 4. Functions
Based on materiality
Cash: is physical money, specified in terms of shape,
size, weight, color, name.
The biggest strength of cash is its highest and fastest
liquidity
Book money: is non-physical money, existing in the
form of numbers, recorded on a bank account
Book money is made up of balances on deposit
accounts at banks. The use of book money is done by
debit entries and on deposit accounts at the bank.
5. Roles 6
 Medium of exchange
Used to pay for goods and services
Promotes economic efficiency by
minimizing the time spent in
exchanging goods and services
The time spent trying to exchange
goods or services is called a
transaction cost
Money is a lubricant that allows the
economy to run more smoothly by
lowering transaction costs, thereby
encouraging specialization and the
division of labor
1. History 2. Nature
Unit of account
Used to measure value in the
economy
Using money as a unit of account
reduces transaction costs in an
economy by reducing the number of
prices that need to be considered.
Formula to calculate the number of
price with N products is:
N(N – 1)/2
3. Forms 4. Functions 5. Roles
Store of value
Repository of purchasing power
over time.
A store of value is used to save
purchasing power from the time
income is received until the time it
is spent.
Money is not unique as a store of
value; any asset—whether money,
stocks, bonds, land, houses, art, or
jewelry—can be used to store
wealth
Liquidity: the relative ease and
speed with which an asset can be
converted into a medium of
exchange
7
1. contribute to the efficiency of the economy
Money improve the efficiency of the economy by its functions.

2. Tools to accumulate and concentrate capital for society

Meet the needs of expanding reproduction and spending.

3. Contributing to the development of international economic relations

Tools for operating foreign economic policies.

4. Macroeconomic management tools

Build national economic development plans.
Build macroeconomic policies: such as financial policy, revenue policy, foreign economic policy and monetary
policy…
Build a system of control criteria in terms of value.

1. History 2. Nature 3. Forms 4. Functions 5. Roles 8

Prepared by Phan Huy Tam – Finance & Banking Dept - UEL
Email: tamph@uel.edu.vn
Phone: 0798109293