Monetary

Policy and
Central Banking
January 30, 2022
The Role and Uses of Money
• What is Money?
Money is the thing that puts food on the table and a coat on
your back (as in Iceland). For Juan dela Cruz, money means
what brings food to the table. For Bill Gates, the wealthiest
man in the world, money can mean his cash, assets or
wealth.
Money can be defined as anything that people regularly use
to buy goods and services from other people. It can be
anything accepted as a means of paying for goods or
services or for paying off debts.
Money is any thing which is used as a medium of exchange.
Evolution of Money
• The word “money” is derived from the Latin word
“moneta” meaning a place for coining money, coin, mint”),
from the name of the temple of Juno Moneta in Rome,
where a mint was.
• Hunting society, skin of wild animals were used as money.
• Pastoral society used livestock.
• Agricultural society used grain and foods.
• The Roman used cattle and salt.
• Money was developed according to needs and
requirements.
• Main aim was to remove the shortcomings of the barter
system.
Stages of Evolution of Money

1. Commodity Money
2. Metallic Money
3. Paper Money
4. Credit Money
5. Electronic Money
Stages of Evolution of Money
1. Commodity Money
It is when different commodities
were used as a medium of
exchange (barter system).
Cow, goats, axes, dried fishes etc.
were used as medium of exchange.
Commodity money had different
problem like:
Storing, durability, transportation,
divisibility problem
Stages of Evolution of Money
2. Metallic Money
The next step in the evolution
was the discovery of precious
metals like gold, silver, and
copper.
Metallic money consist of coins
made of gold, silver, copper or
nickel as mode of payment.
Stages of Evolution of Money
2. Metallic Money
Uncoined Metals
• Metals were not used as a coin
but as a Bullion.
• This created the problem of
measuring the weight and value.
• Supply of money also became
problem when the mines were
fully used up or new mine were
discovered.
Stages of Evolution of Money
2. Metallic Money
Coined Metals
• As a next step, standard coins
were created.
• They had a standard weight
and value.
• Problem of uncoined metals
dissolved by the use of coined
metals.
Stages of Evolution of Money
2. Metallic Money
Metallic Money can be:
• Fully bodied
Whose face value is equal to the value
of metal contained in it.
• Token money
Its face value is higher that intrinsic
value (value of metal)
Stages of Evolution of Money
3. Paper Money
• Paper currency was introduced as
mode of payment.
• Originated as a receipt issued by
Goldsmiths.
• These receipts were then later on
used for payments.
• Difference in the value of receipts
was becoming a problem then.
Stages of Evolution of Money
3. Paper Money
• Refers to the notes issued by the
state or by the bank, usually the
Central bank.
• Paper money can be:
-representative money
-convertible paper money
-fiat paper money
Stages of Evolution of Money
3. Paper Money
Representative Money
Is any medium of exchange, often printed on
paper, that represents something of value, but
has little or no value of its own
Convertible Paper Money
Which is convertible into coins on demand.
Fiat Money
This inconvertible paper currency because it
exists only on the basis of the government
decree that it is money.
Stages of Evolution of Money
4. Credit Money
• Includes bank money (different
instruments offered by the banks)
• Cheques, drafts, etc are examples
• Convenient, safe and easily
convertible into cash.
• Its like near money.
Stages of Evolution of Money
5. Electronic Money
• Also known as e-money, electronic
cash, digital cash, or digital currency.
• Refers to money or scrip which is
exchanged only electronically.
• Typically, this involves use of
computer networks, the internet and
digital stored value systems.
Characteristics of Money
1. Utility- the object must possess intrinsic value.
2. General acceptability- common usage of it would allow the object to transfer
from one hand to another without questions of its origin.
3. Portability- the commodity should be easily carried or transported from one
place to another.
4. Uniformity- the use of standard and uniform metal or paper, as the case may
be.
5. Malleability- the commodity used as money could be melted down and
shaped into different forms as well as imprinted with any desired design.
6. Durability- the commodity chosen as money would have to withstand normal
wear and tear.
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 under the system of partial
reserves