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The history and functions of money

In most cases the money themselves have no value. Their value begins to emerge when they want to buy something. History of money starts from early times, when people had to change one thing for another to survive If the person was in need of an axe, he found someone who he was, and traded it for anything necessary or valuable to the holder of the axe. The same is observed in the days of today, with the only difference that we pay to the seller the money for goods.

Today, the value of money it is difficult to overestimate. The assets, including money, can be divided into real and financial. The real assets are material (or physical) values, such as buildings, equipment, furniture, household appliances and other financial assets include various securities. They can be: - monetary (money and short-term debt obligations), - non-monetary (securities (shares, bonds), which represents long-term debt).

Brief history and types of money

The main types of funds are trademarks (or commodity money), and a symbolic sum of money (or token money). Historically money arose from the human needs of commodity exchange, and in process of its development, complication and perfection appeared the necessity of selection of a product, which measures the value of all other goods. In different countries initially the role of money performed various necessary items, salt, tea, livestock, leather, furs. In Russia as a means of payment went pieces of skin. Also of the history of money we see that in the world was widely used as a means of payment, precious metals, rare seashells, even pig tails, skins dried bananas and canine teeth. These were the so-called commodity money.

 The history of banknotes

Characteristic of commodity money is the fact that their value as a means of payment and value as goods are the same. Commodity money sometimes appear in the modern world, when conventional money for some reasons can not be used. This can be, for example, isolation from the outside world (in prisons as money cigarettes), high inflation or hyperinflation, which in a short time destroys the monetary mechanism of the country, replacing it by barter. So in a Civil war in our country money steel salt, matches, kerosene, then in 1993-94 in Russia barter affected more than half of exchange operations. Today the question about the relative value of goods, as well as on the purchasing power of money, the reasons of its changing tries to give an answer to the quantity theory of money, which States that commodity prices are proportional to the amount of money that was found in circulation.

Money as an asset and their functions

Money is a financial asset, but they are significantly different from other kinds of financial assets. Only they can serve the transaction, i.e. they are tender of the treatment. For example, you cannot buy a loaf of bread in the bakery, giving in return bond. Consider the the functions of money:

 The functions of money

As a medium of exchange, money are an intermediary in the exchange of goods, as well as in transactions. It should be noted that some alternative monetary exchange can be a barter (i.e. the exchange of goods not on money, but on other goods). But barter fraught with loss of time and effort, it is so-called opportunity cost. There are also direct transaction costs, i.e. transaction costs, these include, in particular, expenses ’worn shoes». For the exchange of goods for goods should comply with the condition, which had been named by the famous English economist of the last century, one of the fathers of the theory of marginal utility William Stanley Jevons ’double coincidence of desires" (or double coincidence of wills). According to this provision a person who wants to buy a certain product, will have to find the seller of the product, which would in return to receive something that is made by this person. For example, a shoemaker, who wants to buy bread EN dinner, must find the Baker, who will need boots in exchange for bake their bread. Ill artist must find a pharmacist who was willing to give him the medicine in exchange for a picture. And the teacher of macroeconomics, who wants to make himself a fashionable hairstyle, will have to find a hairdresser, ready to provide this important service for listening economic lectures. Such a search can take a long time and never succeed. But at that time will be spent, shoes worn. For this reason, barter can be recognized as ineffective and inefficient tool. And with this, you can link the emergence of money.

 Ancient money

Money – this is truly the greatest invention of mankind. Today there are different types of money. With their emergence as an intermediary in the exchange of disappeared the problem of double coincidence of wants and were eliminated costs of exchange. Any product you can now sell for money, and on the obtained money to buy other goods. Property cash quickly and without much effort to exchange for another asset, whether real or financial, is called absolute liquidity (or liquidity). It comes from the English word " liquid», which means "liquid or fluid». Note that all assets are the property of liquidity, however the degree of liquidity of different assets also different. Absolute liquidity have only cash money.

The second function of money is that they are used as measuring value of all existing products and services, unit for the invoice (or unit of account). If the distance is measured in kilometers, weight is in kilograms, and the volume of fluid – in litres, the value (or cost) is measured in money. While the funds do not have to perform this function, the value of the product to be measured was in certain quantities of other goods produced in the economy. And the person who wants to buy a certain product or to sell your own, you had to know certain proportion of the exchange. For example, how much bread, sausage, shirts, shoes. When exchanging money disappears such a need. It's enough to know what amount of money to exchange this item. Thus the unit of account is the monetary unit of the country. In conditions of high inflation in the absence of stability of the national currency, can act as the estimated additional units stable payment unit of another country (Euro, dollar), or some conventional unit (cu).

The third function of money, as stated in theory of money is a function of a means of payment (or standard of deferred payment). It is manifested in the use of funds upon the payment of deferred payments, for example, payment of taxes, generation of income, the payment of debts. The difference between this function from the function as a medium of exchange is seen in the fact that the use of money as an intermediary in the exchange involves the movement of goods and money at the same time. And when performing the functions of a payment means the movement of goods and money in time does not match (commercial loans, for example). Or no commodity movement, but a movement of money (Bank loan, for example). Legal tender money can do, because they retain value over time.

The fourth function of money - funds are certain stock values (i.e. the means of preserving value or store of value). the Essence of money is that they are financial asset has some value. This value is in their liquidity and purchasing power. They can buy any product at any time and service, security. In economy such non-inflationary value (or purchasing power) is saved, it does not change in time. So for the same amount you can buy the same quantity of goods, be it in a year or in five years. When inflation money loses value, the purchasing power of their reduced. The General level of prices is growing, so the same amount you can buy less goods. Accumulate rapidly depreciating money, it turns out, is meaningless. In the end, the function of the stock value begins to execute the national currency and a stable currency other countries. Collapsing the usual system of money and they are not so attractive financial asset that should keep on hand, because of the income they generate.

The most important of all is the first function of money – this is the function of a medium of exchange, because it distinguishes cash finactiv from non-monetary. But remember that all the functions of money are interrelated and interdependent. Money used for performing various transactions, they serve as a unit of account, measures the value of all existing products.