Money and Its Functions

Topics: Money, Currency, Commodity money Pages: 18 (6191 words) Published: April 9, 2011
Term paper
in macroeconomics

Theme: Money and its functions in today’s economy

Kopaeva Valeriya
IFF 2-3

1. History of money
2.1 Barter
2.2 Commodity money
2.3 Standardized coinage
2.4 Fiat and credit money
2. Money and its functions and characteristics
3.5 Money as a measure of value
3.6 Money as means of exchange
3.7 Money as a means of accumulation and a store of value 3.8 Money as a standard of payment
3. The role of money in modern economy
List of the used literature


The aim of this work is to analyze the role of money in the economy, as for better understanding the mechanisms of the market economy it is necessary to have a clear idea of the role of money in it. Money plays a huge role in the economy, this is an integral and essential part of every financial system. Money is a means of payment for goods and services, a means of measuring value, as well as a store of value. Generally, to investigate the origin of money, its functions and its role in the economy we need to explore the development of trade exchange, which is the emergence of a stage of development of human civilization. If it were not for money, the exchange will be impossible, so specialization (division of labor) will be. The whole structure of modern economies is predetermined by existence of money. Money appeared due to trade and as the trade is one of the oldest occupations of mankind, and then the ancient roots of monetary system also throw back to ancient times, though the structure of money greatly varies through centuries. The first chapter examines the emergence, main types of money and the stages of development. The second chapter is devoted to the main functions of money, which helps to reveal its essence. These five main functions of money are:

* money as a measure of value
* money as a medium of exchange
* money as a means of accumulation
money as a means of payment
In the last, third chapter we will see the role of the money in the modern economy.

Chapter 1: History of money
1.1 Barter

Origin of the money belongs to the 7.8 millennium BC, when primitive tribes began to have surpluses of some products that can be exchanged for other needed products. Then, market relations were not yet settled, and barter took place, that is, one commodity was exchanged for another without using money. An act of purchase was also an act of sale at the same time. With the expansion of exchanges, especially with the emergence of the social division of labor the producers of goods began to have difficulties. Seller would like to exchange the meat of the animal for the tool, but could not find the needed product on the market, the other was going to trade pottery for grain, but also was forced to leave the market with unsold goods, and so on. So, barter becomes rather inconvenient and takes a lot of time. Different peoples at different times had various equivalents. So, when the herdsman tribes were separated, cattle became the main instrument of exchange. In the steppes the universal equivalent was a horse, a bull or a sheep. In semi-desert areas it was a camel, and in the tundra – a dear. Facts about joining monetary functions with the cattle are contained in the stories, poetry. The money made of metal were called «bulls». The Latin word «pekuniya» («money») derives from the word «pekus» («cattle»). The word «Roel» («cattle») is the basis of the names of the Indian currency «rupee».

Tribes inhabiting the shores of warm seas, used seashells as an first instrument of exchange . History has preserved a number of names of shell necklaces - changos, tsimbis, etc. The most widespread called kauri was a whitish or pinkish shell the size of a button. Impaled on a thread in the form of jewelry, they served as primitive money in ancient China, India and Indochina. Shell money was the most resistant...
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