Money: its origins and attributes

Money: its origins and attributes

The word money derives from Latin "moneta"-the first Roman coinage was minted at the temple of Juno Moneta in 344 BC. Before coinage, various objects such as cattle, pigs' teeth and cowrie shells had been used as money. Such forms of money are termed commodity money and the are not confident to ancient societies; for example, when the currency collapsed in Germany in 1945, commodity money in the form of cigarettes and coffee took its place.

intrinsic value-means that the item would have value even if it were not used as money

For most of its history money has taken the form of coins made of precious metal. The money, thus, had intrinsic value. Many of the units of modern money recall their origins in amounts of precious metal; for example, the pound sterling was originally the Roman pound of silver. Hence the symbol £ derives from the letter L standing for libra, thee Latin for a pound.

Both paper money and modern banking practice originated from the activities of goldsmiths. Goldsmiths used to accept deposits of gold coins and precious objects for safe keeping, in return for which a receipt would be issued which was, in effect, a promissory note. As time went by, these notes began to be passed around in settlement of debts, acting as bank notes do today. The completion of this process came in 1680s when Francis Childs became the first banker to print banknotes.

fiat money is money without intrinsic value that is used as money because of government decree

In today's society we are seeing ever more sophisticated ways of paying for goods and services. It is possible to envisage a future in which there is no need for cash. However, cash remains an enormous resilience; 90% of all transactions are in cash so that, although they account for only a small percentage of the total value of sales, it is unlikely that cash will be replaced for minor day-to-day transactions such as for slot machines, bus fares, etc.

The main attributes of characteristics an asset should have to function as money are:

acceptability: The most important attribute of money is that it is readily acceptable.

durability: Money should not wear out quickly. This is a problem which may affect paper money and to a lesser extent coins. The chief form of money in a modern society, which is bank deposits, suffers no physical depreciation whatsoever as it only exists as numbers on a page or digits in a computer.

homogeneity: It is desirable that money should be uniform. If a country's money stock consisted of $1 gold coins, but some coins contained 1 gram of gold and others 2 grams, what would happen?

People would hoard the 2 gram coins but trade with the 1 gram coins. Thus, part of the money supply would disappear. This is an illustration of Gresham's law, that "bad money drives out good". Most forms of commodity money willl suffer from Gresham's law.

divisibility: Another of the money, such as camels' of pigs' teeth, is that they cannot be divided into smaller units. Modern notes and coins allow us to arrive at almost any permutation of divisibility.

portabilitiy: Commoditiy money and even coins suffer from the disadvantage that they may be difficult to transport. A modern bank deposit however may be transmitted electronically from one place to another.

stability of value: It is highly desirable that money should retain its value. In the past this was achieved by tying monetary value to something which was in relatively stable supply, such as gold. It is one of the most serious defects of modern money that it may be affected by inflation. The hyperinflation in Germany in 1923, for example, made the mark worthless.

difficult to counterfeit: Once a society uses money which has only exchange value, it is essential that the possibilities for fraud and counterfeit be kept to a minimum.