CHAPTER 1

MONEY IN THE NATION’S

ECONOMY
HISTORY OF MONEY
 MONEY
Money is a good that acts
as a medium of exchange
in transactions. It is a way
for a person to trade
what he has for what he
wants.
 BARTER
❑It is the way of exchanging
goods and services.
❑In 9000BC people would
barter goods they had in
surplus for ones they lacked.
 SHELLS
Coastal regions around
the Indian Ocean saw the
use of cowrie shells in
trade as early as 1200BC.
 COINAGE
❑In 1100BC, Chinese people started
using small replicas of goods cast from
bronze
❑Largely for practical reasons these
developed into rounded “coins”
❑Those coins had holes in the middle, so
they could easily carry around their
neck.
 COINAGE
❑In 600BC the first “official” coin was
minted by king Alayttes of Lydia
(modern day Turkey).
❑Greeks and Persians quickly adopted
useful new technique of metal
currency.
❑By the end of the 6th century coinage
is common throughout the region
 LEATHER
❑In 118BC, banknotes in
the form of leather
money were used in
China.
❑They were made out of
deer skin.
 PAPER MONEY
❑The first known paper
banknotes appeared in China
in 9th century.
❑The travels of Marco Polo to
China introduced the idea of
paper money to Europe.
 GOLD STANDARD
❑Gold was officially made the
standard of value in England
in 1816.
❑ “Gold standard Act” of
1900: Gold became an
official instrument of
payment
 PLASTIC MONEY
❑John Biggins invented
“charge-it” card, the first
credit card.
❑ In this 21st century this
currency is widely being
used.
 FUNCTION OF MONEY
▪Medium of exchange.
▪Standard Value
▪Store of Value
▪Standard deferred of payment.
 MEDIUM OF EXCHANGE
❑The most important function of money is to serve as a
medium of exchange
❑ When any good or service is purchased, people use money
❑ Money makes it easier to buy and sell because money is universally accepted
❑ Money, then, provides us with a shortcut in doing business

❑By acting as a medium of exchange, money performs its

most important function
❑Without money, we would have to barter.
 STANDARD VALUE
❑Money is a common denominator in which the relative
value of goods and services can be expressed
❑A job that pays $2 an hour would be nearly impossible to fill,
while one paying $50 an hour would be swamped with
application
 STORE OF VALUE
❑If you could buy 100 units of goods and services with $100 in 1982,
how many units could you buy with $100 in 2000?
❑Answer: you could have bought just 51 units – During this period,
inflation robbed the dollar of almost half of its purchasing power
❑Over the long run, particularly since World War II, money has been a
very poor store of value – However, over relatively short periods of
time, say, a few weeks or months, money does not lose much of its
value.
 STANDARD DEFERRED OF MONEY
❑Many contracts promise to pay fixed sums of money well
into the future
❑A couple of examples are 30-year corporate bonds and a
20-year mortgage
 MONEY VS BARTER
❑Without money, the only way to do business is by bartering
❑For barter to work, I must want what you have and you
must want what I have
❑This makes it pretty difficult to do business
❑“Everything, then, must be assessed in money: for this
enables men always to exchange their services, and so
makes society possible” – Aristotle, Nicomachean Ethics
13-11
 FEATURES OF GOOD
MONEY
▪Generally Acceptable - means that everyone must be able to use the money for transactions.
▪Divisible - means that the money can easily be divided into smaller units of value.
▪Uniform- means that all versions of the same denomination of currency must have the
purchasing power.
▪Malleable – this applies only to coins. Since coin is made of metal, it may be liquidated through
intense heat, and therefore. Capable of being re-shaped or re-coined into other denominations.
▪Cognizable - the term is taken from “recognizable”. As such, the thing or object being used or
designated as money must be easily recognized by the populace, even by the unschooled.
▪Portable - means that individuals are able to carry money with them and transfer it easily to
other individuals
▪Durable - means that the item must be able to withstand being used repeatedly.
 KINDS OF MONEY
▪COMMODITY MONEY - is a commodity that has intrinsic value.
Intrinsic value means that the commodity has value even if it is not
used as money. In times of economic turmoil, such as severe
economic depressions or hyperinflation, people sometimes turn to
commodity money instead of the money authorized by their
governments.
▪FIAT MONEY- is government-issued currency that is not backed by a
physical commodity, such as gold or silver, but rather by the
government that issued it. The value of fiat money is derived from
the relationship between supply and demand and the stability of the
issuing government, rather than the worth of a commodity backing it
as is the case for commodity money.
 MANAGED MONEY
A managed currency is one whose price and exchange rate
are influenced by some intervention from the central
bank. Currency is a generally accepted form of money,
including coins and paper notes, which is issued by a
government and circulated within an economy. A central
bank or monetary authority is the manager of money and
often a nationalized institution that is given free control over
the production and distribution of the money and credit for
a country.
 DIFFERENT TYPES OF MONEY USED
IN THE PHILIPPINES
▪Commodity Money - is money whose value comes from a commodity of
which it is made. Commodity money consists of objects having value or use
in themselves (intrinsic value) as well as their value in buying goods.
▪Metallic Money – money made of any metal is called metallic money. It
refers to coins made of various metals like gold, silver, nickel, copper, etc.
▪Representative Money - is any medium of exchange, often printed on paper,
that represents something of value, but has little or no value of its own
(intrinsic value).
▪Paper Money - paper money is a country's official, paper currency that is
circulated for the transactions involved in acquiring goods and services. The
printing of paper money is typically regulated by a country's central bank or
treasury in order to keep the flow of funds in line with monetary policy.