This is the blog written to explore the knowledge about money.
In very simple language,
Money is the coin and paper note that is circulated and accepted as a medium of consideration in the society.
However, the concept of money is not limited to this. In ancient years beside the use of metallic coins -cattle, tobacco and grains were also used as money. So, is it appropriate to call all of these items as money?
A ) Traditional Function-Based Views:
Under this view, anything that performs the functions of money is considered as money. The economists had a consensus-ad-idem as to the concept of money. They believed that, any commodity that functions as money can be said to be money.
However, the concept of money is not limited to this. In ancient years beside the use of metallic coins -cattle, tobacco and grains were also used as money. So, is it appropriate to call all of these items as money?
A ) Traditional Function-Based Views:
Under this view, anything that performs the functions of money is considered as money. The economists had a consensus-ad-idem as to the concept of money. They believed that, any commodity that functions as money can be said to be money.
In the words of Hartley Withers, “Money is what Money does.”
So, this definition has made the concept bit complex …isn’t it?
To simplify it, the economist mentioned that, in order to be qualified as a money, it must have to satisfy following four important functions:
1. It must be used as a medium of exchange .
2. It must have measure of value .
3. It must be used as a standard of deferred payment .
4. It must have store of value.
The economist like: Crowther, R.P.Kent, walker and other modern economist were the supporters of this views.
However, an economist named Conlberston had argued that, money should not be defined upon its characteristics. It is a concept that is based on a function of good, on a particular use to which it is put.
B ) Generally Accepted Views:
According to Benham :
“Money is defined as generally acceptable purchasing power or something which everybody is prepared to accept in exchange of goods and services. “
According to Seligman :
“Money is one thing that possesses general acceptability.”
C) Legal Views:
Under this view, anything that is declared money by the central banks of the country is called money.
According to Hawtery :
“Money has two sides: first it is a unit of account, second it is legal tender “
According to Nepal Rastra Bank Act, 2002 :
"'Money' means all types of currency notes, postal orders, postal notes, money orders, cheques, drafts, traveler's cheques, letters of credit, bills of exchange, promissory notes and credit cards and this term also includes similar types of monetary instruments as the Bank may prescribe, as per the requirement, through the publication and transmission of public notice. "
To simplify it, the economist mentioned that, in order to be qualified as a money, it must have to satisfy following four important functions:
1. It must be used as a medium of exchange .
2. It must have measure of value .
3. It must be used as a standard of deferred payment .
4. It must have store of value.
The economist like: Crowther, R.P.Kent, walker and other modern economist were the supporters of this views.
However, an economist named Conlberston had argued that, money should not be defined upon its characteristics. It is a concept that is based on a function of good, on a particular use to which it is put.
B ) Generally Accepted Views:
Under this view, whatever the society accepts as money becomes money. The economist like: Marshall, Benham, Seligman, Robertson and other neo-classical economists gave their definitions on the basis of general acceptability. This is the reason, cheques, bills, drafts, Letter of Credit are considered as money.
According to Benham :
“Money is defined as generally acceptable purchasing power or something which everybody is prepared to accept in exchange of goods and services. “
According to Seligman :
“Money is one thing that possesses general acceptability.”
C) Legal Views:
Under this view, anything that is declared money by the central banks of the country is called money.
According to Hawtery :
“Money has two sides: first it is a unit of account, second it is legal tender “
According to Nepal Rastra Bank Act, 2002 :
"'Money' means all types of currency notes, postal orders, postal notes, money orders, cheques, drafts, traveler's cheques, letters of credit, bills of exchange, promissory notes and credit cards and this term also includes similar types of monetary instruments as the Bank may prescribe, as per the requirement, through the publication and transmission of public notice. "
(-as amended on 14th November 2016)
The economist argued that, these definitions has neglected the rule of “general acceptability”. Money can’t be called as money, if the people do not accept it as money.
For eg. During the situation of hyperinflation in Germany, people adopted U.S dollar as the money, and rejected the government money.
D ) Modern functional View:
It is an extension of traditional functional view with some degree of expansion over it. Under this view the function of money is classified as follows:
1 ) Primary Function
2 ) Secondary Function/Derived Function:
3 ) Contingent Function:
As discussed by prof. Kinley:
A) Commodity money
If commodity is used as money, it is called commodity money. For e.g. Animal leathers, bones, grains, cattle and so on.
B) Metallic money/ Standard Money
If metals is used as money, it is called metallic money. For e.g. Coins made from iron, copper, brass, gold, silver and so on. This money were able to be used for long period of time. Therefore, metallic money were termed as standard money. The metallic money took any one of the following two forms:
1 ) Standard coins:
If the intrinsic value of money is greater or equal to the face value of money, it is called standard coins. Generally, the metals used are gold and silver (either in bimetallism form or mono-metallic form) with definite weight and purity. These money are also called “full-bodied coins”.
2 ) Token coins:
If the intrinsic value of money is less than its face value of money, it is called token coins. Generally, the metals used are made up of – aluminum, copper, brass, iron. Nobody is bound to accept more than a particular quantity of it. Therefore, they are called “subsidiary money”.
C) Paper money:
A money made up of paper is called paper money. It is generally issued by central bank. The intrinsic value of money is very less than its face value. It is legal tender money accepted by all. China is sourced to be first country to use paper money. It can be :
1 ) Representative money:
Such money that represents other form of money, it is called representative money. For eg. Golds are not circulated in large amount from one place to other. So, it is kept in reserves. One the behalf of it, a certificate of ownership is provided. Such paper do act as money that represents the quantity of gold. Therefore, it is called “representative money” and “convertible money” .
2 ) Fiat money:
If gold is not kept at its full value in the reserve, then such money is called fiat money. Its face value is very much high than its intrinsic value. It derives value only by the order of government. There is no provision to get it converted into gold or silver. It is called “in-convertible money”.
D) Plastic Money:
Money made from plastics are called plastic money. Nepal Rastra Bank had issued Nepalese ten rupee as plastic money. It is also a legal tender.
E) Bank money:
The cheques drawn on demand or current deposits of bank are called bank money. There is a strong debate, whether cheques drawn upon saving deposits (also called near money) will be called bank money or not. Bank money also includes: drafts, travelers cheque, bill of exchange, promissory cards and other banking cards. Since these money are not a legal tender, it is also termed as “optional money”. This kind of money is also called “credit money”.
F) Digital Money:
The money that is in electronic form (digitally stored) are called digital money. They are also called “cryptocurrency” or “Digital Currency”. They are not legal tender, however has more acceptability by the general public across the world. For eg. Flooz, Beenz, Bitcoins.
For eg. During the situation of hyperinflation in Germany, people adopted U.S dollar as the money, and rejected the government money.
D ) Modern functional View:
It is an extension of traditional functional view with some degree of expansion over it. Under this view the function of money is classified as follows:
1 ) Primary Function
- Money works as a medium of exchange
- Money serves as common measure of value
- Money serves as a unit of account
2 ) Secondary Function/Derived Function:
- Money serves as the basis of standard of deferred Payment.
- Money serves as a store of value .
- Money serves as the transfer of value (purchasing power) .
3 ) Contingent Function:
As discussed by prof. Kinley:
- Money serves as a basis of credit .
- Money serves as a distribution basis of social income .
- Money works as a general form of capital .
- Money is the source of deriving maximum satisfaction and maximum benefits.
Forms of Money:
Money can be of following forms:
A) Commodity money
If commodity is used as money, it is called commodity money. For e.g. Animal leathers, bones, grains, cattle and so on.
B) Metallic money/ Standard Money
If metals is used as money, it is called metallic money. For e.g. Coins made from iron, copper, brass, gold, silver and so on. This money were able to be used for long period of time. Therefore, metallic money were termed as standard money. The metallic money took any one of the following two forms:
1 ) Standard coins:
If the intrinsic value of money is greater or equal to the face value of money, it is called standard coins. Generally, the metals used are gold and silver (either in bimetallism form or mono-metallic form) with definite weight and purity. These money are also called “full-bodied coins”.
2 ) Token coins:
If the intrinsic value of money is less than its face value of money, it is called token coins. Generally, the metals used are made up of – aluminum, copper, brass, iron. Nobody is bound to accept more than a particular quantity of it. Therefore, they are called “subsidiary money”.
C) Paper money:
A money made up of paper is called paper money. It is generally issued by central bank. The intrinsic value of money is very less than its face value. It is legal tender money accepted by all. China is sourced to be first country to use paper money. It can be :
1 ) Representative money:
Such money that represents other form of money, it is called representative money. For eg. Golds are not circulated in large amount from one place to other. So, it is kept in reserves. One the behalf of it, a certificate of ownership is provided. Such paper do act as money that represents the quantity of gold. Therefore, it is called “representative money” and “convertible money” .
2 ) Fiat money:
If gold is not kept at its full value in the reserve, then such money is called fiat money. Its face value is very much high than its intrinsic value. It derives value only by the order of government. There is no provision to get it converted into gold or silver. It is called “in-convertible money”.
D) Plastic Money:
Money made from plastics are called plastic money. Nepal Rastra Bank had issued Nepalese ten rupee as plastic money. It is also a legal tender.
E) Bank money:
The cheques drawn on demand or current deposits of bank are called bank money. There is a strong debate, whether cheques drawn upon saving deposits (also called near money) will be called bank money or not. Bank money also includes: drafts, travelers cheque, bill of exchange, promissory cards and other banking cards. Since these money are not a legal tender, it is also termed as “optional money”. This kind of money is also called “credit money”.
F) Digital Money:
The money that is in electronic form (digitally stored) are called digital money. They are also called “cryptocurrency” or “Digital Currency”. They are not legal tender, however has more acceptability by the general public across the world. For eg. Flooz, Beenz, Bitcoins.
(For details regarding currency of nepal and its related rules in relation to money, bank notes and coins click on above link)
pic. credit :www.history.com
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