What is Money? Definition, History,Types,Uses and qualities
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| Young lady holding paper money |
At the end of this article, you will be able to do and understand the following:
1. The definition, meaning,types and origin of money
2. Define effectively the Meaning of money
3. Using real money, mention and identify the various types of money
4. State at least three functions of money
5 understand other modes of payment.
What is Money?
Before now, you may have noticed that before you receive most things you need, you need to exchange it with money. It is money that is mostly use in exchange for goods and services.
Therefore, money is any object or record that is generally accepted as a means of payment for goods and services and payment of depts in a given country or location.
Money can also be defined as a legally accepted object or material in the exchange of goods and services.
Further more Money is a medium of exchange, typically in the form of currency or coins, that is widely accepted in transactions for goods and services. It serves as a unit of account, a store of value, and a standard of deferred payment. Essentially, it's a tool that facilitates economic transactions and serves as a measure of value.
History and Origin of Money
The origin of money dates back to at least 100,000 years ago when people used a method called trade by barter.
Trade by barter is a system of exchange where goods or services are directly exchange for other goods or services without using a medium of exchange, such as money.
Other methods of exchange that existed in the past are gifts exchange and dept. Many cultures around the world eventually developed the8r use of money, for example, the shekel, weights of barley, then came shells of cowry then use of gold and silver coins. The first stamped coins were minted around 650 to 600 BC and the first bank notes were issued in Europe by stockholms
Banco in 1661.
Further more The concept of money has evolved over thousands of years. Initially, people engaged in bartering, exchanging goods and services directly. However, as societies grew more complex, the limitations of bartering became apparent. Thus, various forms of money emerged, including commodity money (such as shells, salt, and precious metals) and representative money (like paper notes backed by a commodity). Eventually, fiat money, which has no intrinsic value but is declared legal tender by a government, became the predominant form of currency. Today, money exists in digital forms as well, with electronic transactions dominating the global economy.
Types of Money
There are various types of money in the countries of the world. If you do not know the types of money, you will be confused when and where to use any of them. The various types of money include:
Coins
Coins are pieces of hard material usually metals used primarily as a medium of exchange or legal tender.
They have uniform weight, and are produced in large quantities at a mint in order to help trade. They are most often issued by a government and in many countries are issued by the central bank of Nigeria in the case of Nigeria, also other countries have their own central bank which is responsible for the supply of money in the economy.
Coins are used as money in every transaction, circulating alongside the bank notes: these coins are usaully worth less than banknotes.
In Nigeria, coins are in 5kobo, 25kobo, 50kobo ,1 naira and 2 naira denomination, while in the United States of America they have 1 cent, 50 cent.
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| Nigerian money |
Other types of money include:
Commodity Money: This is money that has intrinsic value, such as gold or silver.
Fiat Money: Fiat money is currency that has value because a government declares it to be legal tender, but it is not backed by a physical commodity.
Representative Money: This type of money includes paper notes or tokens that can be exchanged for a fixed quantity of a commodity, such as gold or silver.
Digital/Cryptocurrency: These are forms of money that exist purely in digital form, like Bitcoin or Ethereum.
Commercial Bank Money: This refers to the money created by commercial banks through the process of credit creation when they issue loans.
Central Bank Money: This is the money issued by a country's central bank, including physical currency (like banknotes and coins) and reserves held by commercial banks.
Each type of money serves different functions within an economy and can be used for various purposes.
Paper Money
Paper money is also called a banknotes or bills. It is a medium of payment allowed by the law for meeting financial obligations like buying and selling of goods and services.
Banknotes were originally issued by commercial banks, but since their general acceptance as a form of mobey, most countries have assigned the responsibility for issuing national banknotes to a central bank. In Nigeria, the central bank is responsible for the printing and issuing of all bank notes. In Nigeria they are on denominations of 5,10,20,50,100,200,500, and 1000 naira notes, while in the United States of America they are on denominations of 1,5,20 and 100 dollars respectively.
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| American dollar |
Other Acceptable Modes of Payment
Other means of payment include the following:
1. Cheque
A cheque is a document that orders a payment of money from bank account. The person writing the cheque, called the drawer, has an account with the bank ( often called current or cheqing account) where their money is held. The drawer writes the various details including the amount, date, and a payee ( the person recieving the money) on the cheque, and signs it, ordering their bank, known as the drawee, to pay that person or company the amount of money stated. Cheques are useful because they prevent you from carrying large sum of money.
There are two major types of cheque, they are crossed and open cheques.
Crossed cheque:
Crossed cheque cannot be used to withdraw cash immediately. They must be paid into a type of account called a current account.
Open cheque:
The open cheque can be used to withdraw cash directly across the counter as soon as it is issued.
2. Bank Draft
Sometimes an individual or company can issue a check which cannot be cash at the bank, usaully because the account is not sufficiently funded. A bank draft is therefore a type of check where the payment is quaranteed to be available by the issuing bank.
Usaully, the bank will make sure the bank draft requesters account has sufficient funds for the check to clear. Once it has been confirmed that sufficient funds are available, the bank will set aside the money from the persons account to be given out when the bank draft is used.
3. Electronic Fund Transfers
Electric funds transfer is the use of computers based systems and the internet to transfer money from one account to another , either within a single bank or financial institution or across multiple institutions.
Electronic fund transfers are safe, secure, efficient, and less expensive than paper, and cheque payment and collections. Electronic transfer can take various forms which include:
1. Use of electronic cards ( debit card popularly known as ATM cards) and credit cards
2. Use of point of sale terminals ( used to pay for goods in shops, malls etc)
3. Internet banking
4. Real time interbank settlement systems.
Read also; Easy ways to make money online
Uses of Money
Money can be used for many purposes. It is important we know the various functions of money especially as we use them.
Money performs the following functions:
1. Medium of exchange:
It can be used to buy different goods and pay for different services. It makes exchange of goods and services easy. Money is, therefore, widely acceptable as payment for depts.
2. Standard of deferred payment:
Money serves as a medium by which business transactions, on credit , can be settled in the future. The use of money makes it possible for payment to be deffered from the present to a future date.
3. Unit of account:
In serving as a unit of account, it becomes practically possible for individual and companies to keep accounting records of their transactions with people either through bank statements or journals, invoice, records on jotters.
4. Store of value:
Money can be stored as wealth for use in the future. Money can be stored or saved in the bank for long periods of time, and it can be taken out whenever the needs arises.
5. Money as a measure of value:
Money is used as a yardstick to measure and compare the worth of goods and services. The value of goods and services are, therefore, expressed by their prices.
Read also: Methods of Buying
Further more Other uses of Money include:
Money serves various purposes in modern society:
Medium of Exchange: Money facilitates transactions by serving as a universally accepted medium of exchange. It allows people to trade goods and services efficiently without the need for bartering.
Unit of Account: Money provides a standard unit for measuring the value of goods and services. Prices are expressed in monetary terms, making it easier to compare the value of different items.
Store of Value: Money allows individuals to store purchasing power over time. Unlike perishable goods, money can be saved and used in the future to purchase goods and services.
Standard of Deferred Payment: Money enables contracts and agreements to be made for future payments. It provides a reliable means for individuals and businesses to fulfill financial obligations over time.
Facilitates Economic Growth: Money facilitates investment, entrepreneurship, and economic growth by providing the necessary capital for businesses to expand operations, develop new products, and create employment opportunities.
Enables Specialization and Trade: Money encourages specialization and division of labor within economies. People can focus on producing goods or services in which they have a comparative advantage and then use money to obtain other goods and services they need.
Liquidity: Money is highly liquid, meaning it can be easily converted into goods, services, or other assets. This liquidity provides flexibility and financial security to individuals and businesses.
Facilitates Economic Transactions: Money facilitates various economic transactions, including investments, loans, savings, and payments for goods and services, contributing to the overall functioning of the economy.
Qualities of Money
Money should posses certain qualities before it can be regarded genuine money. Look out for these qualities while you use money.
1. Generally acceptable: money should be generally acceptable by all in the society or countries as a means of exchange.
2. It most be potable: The object called money must be something, that could be easily carried about from place to place. That means, it is light in weight.
3. Relatively scarce: Money should not be too much in circulation so as not to lose its value.
4. Homogeneity: Each kind of money must be in the same size, colour and quality, nation wide.
5. Durability: The object called money must be able to last long, must not be easily perishable. It must stand the test of time.
6. Recognizable: Money must be easily recognised by all people within the country of usage. It must not be easily counterfeited.
7. Stability: The value of money must be stable. This will help business to be predictable and encourage lending and borrowing of money.
8. Divisibility: Good money must be capable of being divided into smaller units.
In conclusion Money plays a pivotal role in modern society, serving as a medium of exchange, a unit of account, and a store of value. However, its impact extends beyond economics, influencing social dynamics, power structures, and individual behavior. While money can facilitate progress and prosperity, its pursuit can also lead to inequality, corruption, and ethical dilemmas. Ultimately, how society manages and distributes money reflects its values and priorities, shaping the trajectory of human civilization.
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