Money and money system

The first European currencies. Economic characteristics medium of exchange. The role of money in the society. Weakness of money in term of social measurement system. Money мarket fund price level. Japan direct investment in China. Returns of savings.
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CHAPTER 1. INTRODUCTION

money currency economic investment exchange

Money has not always come from cash machines at banks. It has a long history and has developed over thousands of years. As our society has developed, so our need for more sophisticated types of money has developed in parallel, as is described here.

The history of money shows us that it is a medium of exchange for trade. It can be a medium of exchange because it has a clear value that is trusted by everyone.

Money is also a way to store value for the future. Finally, money is also a unit of account. It can be counted easily and it enables a clear value to be given to goods.

Until recent times, money was based solely on coins. This was because a coin contained a precise weight of a metal, such as gold or silver, that had a known value. This type of money is known as 'specie money' and its value is guaranteed by the precious metal it contains. As trade increased, more and more money was needed as a medium of exchange. Therefore, banks and governments began issuing banknotes.Banknotes do not contain the value they represent. Instead, the issuer of a banknote guarantees its value. This is known as 'fiat money'.

Money is anything that is generally accepted as payment for goods and services and repayment of debts. The main uses of money are as a medium of exchange, a unit of account, and a store of value. Some authors explicitly require money to be a standard of deferred payment.

The term "price system" is sometimes used to refer to methods using commodity valuation or money accounting systems.

The word "money" is believed to originate from a temple of Hera, located on Capitoline, one of Rome's seven hills. In the ancient world Hera was often associated with money. The temple of Juno Moneta at Rome was the place where the mint of Ancient Rome was located.^[4]. The name "Juno" may derive from the Etruscan goddess Uni (which means "the one", "unique", "unit", "union", "united") and "Moneta" either from the Latin word "monere" (remind, warn, or instruct) or the Greek word "moneres" (alone, unique).

CHAPTER 2. ANALYSIS, FINDINGS

2.1 History of money. Barter

Many thousands of years ago, our European ancestors lived as hunters and farmers. Metals had not been discovered, so they hunted and farmed with stone tools - this time was known as the Stone Age. Stone Age men and women did not have the banknotes and coins that we use today. Instead, they would exchange goods with each other: for example, a hunter could exchange animal skins with a farmer for grain, or a fisherman could exchange decorative seashells for a polished stone axe with a hunter. This exchange is known as barter. An important feature of barter is that it involves the exchange of goods that have value.

2.2 A medium for exchange

When our ancestors learned how to make metals then exchanges became easier.

This is because metals, such as gold silver, tin and iron, were valuable to everyone. So, a farmer could barter his cattle for a certain weight of silver, then later, the farmer could use some of this silver to pay his taxes. In this way, valuable metals and other objects became a 'measure of value', a 'medium of exchange' and a way to 'store value' until it is needed.

2.3 The first coins

Around 2600 years ago, the first coins were made in Asia Minor.

The ancient Greeks quickly adopted this new idea and started producing silver and bronze coins, for example the silver drachma. These early coins contained a specified weight of metal with a certain value. And to guarantee this weight, the coins were stamped with a seal by the king or city or country that issued them. Coins were convenient because they could be counted rather than weighed. Because these new coins were a trusted and efficient 'medium of exchange' they helped greatly increase trade in the ancient world.

2.4 The first European currencies

To guarantee the value of coins, kings and governments strictly controlled their production.In ancient Rome, coin production was done in the temple of Juno Moneta - which is where the word 'money' comes from. Later, as the Roman Empire expanded, other mints were opened and the same roman coins were accepted for exchange all across Europe, from the British Isles to Turkey - the first pan-European currency. Later, as the Roman Empire broke up and the nations of Europe began to appear, each country kept control of its own coinage. It was from these European nations that we inherited the many coins and currencies that existed before the euro. These were often named after units of measure, such as the Italian lira and the Finnish markka, because the coins originally contained a fixed amount of gold and silver. A problem with many currencies is that, depending on the success of individual economies, the exchange rate between the currencies can vary a lot - this makes trade between countries a risky business, so it is discouraged.

2.5 Single currencies in history

Before the euro, monetary unions with single currencies were tried in Europe. The Latin Monetary Union united France, Belgium, Switzerland, Greece and Bulgaria in 1867 with gold and silver coins, and a Scandinavian Monetary Union was established in 1875. One reason why these unions failed was because the price of gold varied with respect to silver - destabilising the currencies. One successful monetary union was that of the German Federation. A customs union was completed by 1834 and currency exchange rates fixed. Then came a single currency, the Reichsmark, the forerunner of the Deutschmark. German monetary union succeeded partly because clear rules were in place on how to produce the coins.

2.6 20th century currencies in Europe

Before the euro was introduced most European countries had their own coins and banknotes their own currency.For travel and trade, it was necessary to change money as you changed country. In Germany you paid in Deutschmarks, if you left Germany and travelled to France you had to exchange your Deutschmarks for French Francs, and so on.

The names of Europe's old currencies often revealed something about their origins:

? The schilling, used in Austria, was named after a mark on a stick used for counting.

? The tolar used in Slovenia comes from the medieval coin, the thaler, first minted in the Czech Republic in 1518 - the name 'thaler' is the origin of the term 'dollar' in the USA.

? The name of the Greek drachma means 'handful' and refers to a handful of six metal bars that were used as currency before the drachma was introduced in ancient Greece.

? The franc, meaning 'free' in French, was first minted in the 14th century to pay the ransom for the French King John the Good.

2.7 Economic characteristics

Money is generally considered to have the following characteristics, which are summed up in a rhyme found in older economics textbooks: "Money is a matter of functions four, a medium, a measure, a standard, a store." That is, money functions as a medium of exchange, a unit of account, a standard of deferred payment, and a store of value.

There have been many historical arguments regarding the combination of money's functions, some arguing that they need more separation and that a single unit is insufficient to deal with them all. One of these arguments is that the role of money as a medium of exchange is in conflict with its role as a store of value: its role as a store of value requires holding it without spending, whereas its role as a medium of exchange requires it to circulate. Others argue that storing of value is just deferral of the exchange, but does not diminish the fact that money is a medium of exchange that can be transported both across space and time. 'Financial capital' is a more general and inclusive term for all liquid instruments, whether or not they are a uniformly recognized tender.

2.8 Medium of exchange

Money is used as an intermediary for trade, in order to avoid the inefficiencies of a barter system, which are sometimes referred to as the 'double coincidence of wants problem'. Such usage is termed a medium of exchange.

2.9 Unit of account

A unit of account is a standard numerical unit of measurement of the market value of goods, services, and other transactions. Also known as a "measure" or "standard" of relative worth and deferred payment, a unit of account is a necessary prerequisite for the formulation of commercial agreements that involve debt.

?Divisible into small units without destroying its value; precious metals can be coined from bars, or melted down into bars again.

?Fungible: that is, one unit or piece must be perceived as equivalent to any other, which is why diamonds, works of art or real estate are not suitable as money.

?A specific weight, or measure, or size to be verifiably countable. For instance, coins are often made with ridges around the edges, so that any removal of material from the coin (lowering its commodity value) will be easy to detect.