Functions, Forms and History of Money

Functions, Forms and History of Money.

The use of money is as old as the human civilization. Money is basically a method of exchange, and coins and notes are just items of exchange. But money was not always the same form as the money today, and is still developing
Money is anything that is commonly accepted by a group of people for the exchange of goods, services, or resources. Every country has its own system of coins and paper money.
In the beginning, people bartered. Barter is the exchange of a good or service for another good or service, a bag of rice for a bag of beans. However, what if you couldn't agree what something was worth in exchange or you didn't want what the other person had. To solve that problem humans developed what is called commodity money.
As primitive communities develop into more advanced societies people realize they need some commodity that does not decay & remains valuable, some commodity with the help of which people can measure the value of one thing against the value of another thing. Such commodity is money. It does not depreciate, people accept money in exchange for anything, they measure all goods in terms of money.
Thus money is a necessary part of any civilized society. It serves as: a medium of exchange, a store of wealth, a measure of value.
And now I will tell you a few words about forms of money. Money means coins, banknotes & cash in the bank account. We use it to make payments.
Nowadays we know that the units of money must have certain qualities to be successful. They must be:
1. Standard. They must all be of the same kind, look the same, weigh the same, all be of the same type, shape, size & quality.
2. Durable. They must be strong & long-lasting, so that they are a store of value & do not wear out easily.
3. Acceptable. They must be accepted as a medium of exchange in a society or country for buying & selling, that is they must be legal tender.
4. Portable. They must be easy to carry.
5. Divisible. It must be possible to divide the units of money of large value into smaller values.
In the past many things were used as the medium of exchange – corn, furs, rice, tobacco, salt, tea, rum – there is no end to them. In time people realized that metals were superior to the commodities previously mentioned because coins made from metal are homogeneous, portable & easily divisible by weight.
The first coins are credited to China around about 1.000. B.C. Originally people minted coins locally, gradually the state accepted responsibility for both the manufacture & the quality of coinage.
After coins came notes. The hardest problem for anyone with money then was to find somewhere safe to keep it. It seemed sensible to look around for someone who had vaults & safes for their own business, & then to ask them to look after the money. Gold & silversmiths had such safes, because their trade was traffic in coin & bullion, & they needed somewhere secure to keep their stocks.
So it came about in the seventeenth century that goldsmiths took these deposits for safe keeping. So the goldsmiths began to exercise some of the functions of a banker. Then they started to charge interest. This was the beginning of banks.
Generally speaking, I can say that just as the division of labor creates the need for exchange, exchange creates the need for money. With money, exchange need not rely on the double coincidence of wants required with barter. People can sell their labor in return for money to be used for future consumption. Now money serves three primary functions: a medium of exchange, a standard of value, and a store of wealth.