BANKING AND MONEY
1) Money and its functions
2) Evolution of money
3) Ways in which banknotes are designed to be forgery-proof
4) What do we pay with?
5) Banking system
6) Bank products
Money and its functions
What is money?
Money is everything that serves as a universally accepted medium of exchange or means of payment. Money can be considered as a special commodity that mediates and facilitates the exchange of other goods. In this sense money works as a common equivalent.
Functions of money
- a) Nowadays hardly any economy can do without the basic medium of exchange: money. Money enables people to exchange goods and services for other commodities – to make transactions.
- b) Money also serves as a store of value. It can be kept for spending at a later date. At home money loses value bacause of inflation, so it is better to deposit financial assets with a bank or some other thrift institution. The money deposit then pays its owner interest.
Money can also be stored in other forms of assets, the portfolio: securities, shares, or bonds. This form of storing wealth in the form of different investments is quite popular as people prefer to diversify the risk.
- c) I its third main function, money works as a unit of account – it becomes a measure of value. It enables us to compare the value of various goods and services. From the price of the goods we know, for example, that 20 personal computers may have the same value as one automobile.
Evolution of money
Before money existed, people had to use the barter system to exchange their products and services. Barter meant the direct exchange of goods. In the market place one could barter one’s hen for something of equal value. This was, however, a very unsatisfactory system because people’s needs seldom coinsided.
Later people developed a more practical system of exchange. They used commodity money – goods which members of the society recognized as having value. They were for instance: cattle, skulls, feathers, shells, salt, wine, elephant tusks, tobacco, etc.
Precious metals, expecially gold and silver, gradually took over because they had the basic qualities that money should possess: divisibility, portability, durability, homogeneity, they were limited supply, and counterfeiting was extremely difficult.
Paper money developed from paper receipts that goldsmiths gave their clients as confirmation of accepting their gold for safekeeping in