Hi friend, in this blog
we are going to discuss about Money. I think that many people don't known how
is working? what is money in really wroth? Is money value is improving or not?
What gives money its value? So after this blog you will have some basic knowledge
of money and its purpose.
What is money?
Money is really anything that people use to pay for goods and services and to pay people for their work. Historically, money has taken different forms in different cultures—everything from salt, stones, and beads to gold, silver, and copper coins and, more recently, virtual currency has been used. Regardless of the form it takes, money needs to be widely accepted by both buyers and sellers in order to be useful.
For
example if you taken our hundred rupee note, it has written one line "I
PROMISE TO PAY THE BEARER THE SUM OF ONE HUNDRED RUPEES'"which is
signed by our governor. So Money solves the
problems created by the barter system. First, money serves as a medium of exchange, which means that money acts as an
intermediary between the buyer and the seller. Instead of exchanging
hairdos for shoes, the hairstylist now exchanges hairdos for
money. This money is then used to buy shoes. To serve as a medium of exchange,
money must be very widely accepted as a method of payment in the markets for goods,
labor, and financial capital.
Forms of Money
The components of the
money supply are as follows:
·
Paper Money and Coins – The Central Bank or Government issues these as Currency. Further, they
have a 100% acceptance as a means of payment. The acceptance is based on a
‘promise to pay the bearer’ gold and/or foreign exchange in return.
·
Demand Deposit – A bank has a legal obligation to
pay money on demand. The money-ness is highest in currency and demand deposits.
·
Near Money or Money Substitute – A commonly used
Near Money is a bank cheque. many people accept it as a means of payment.
However, there is no legal compulsion behind their acceptance.
·
Term deposit – This is less liquid than a demand
deposit as the individual cannot use it before a fixed period of time.
· Other Financial Assets – Many non-banking financial intermediaries issue these assets.
History of
Money:
Over the centuries gold and silver accumulated in the temples.
Only so much was required for decorative purposes. The fact that the temples
were accumulating so much gold would have been a major factor behind the
decision to transform it into money, or monetise it.
The theory is that the priests must have decided to use up some
of this surplus gold by monetising it: They could have for example determined
that 130 grams of gold was worth 1 cow. Overtime the priests would have charged
for their services, such as advice on when to plant crops, and would have come
up with a standard charge for these services.
The theory that the priests determined the value of gold by
arbitrary decision, contradicts the trading origin of money, which assumes that
the value of gold was determined by the effort involved in mining it and
shaping it into a standard unit of money.
Value of Money
The value of money simply implies its
exchange value. It means the number/amount of goods and/or services that
you can obtain in exchange for a single unit of money.
Further, the value of money is
inversely proportional to the price of goods/services. Therefore, if
the price level increases, the value of money decreases and
vice-versa.
So Money is a common resource, which should be
should be created by Government for the benefit of the People. Money is not an animal like a cow or a goat. The
nature of money is that it is a legal invention. Money is a creature of the
law. Aristotle defined money as an abstract legal power, publicly controlled
for the common good.
Last and main point we need to understand is the entire money supply should be created by Government for and on behalf of the People. Money should become Man’s servant rather than his master.
