‘‘ HISTORY OF MONEY ’’

SUBMITTED TO:

SIR ARSHAD HUSSAIN

PRESENTED BY:
SYED TALIB MEHDI RIZVI (sp18-bbah-0042).

AHMED ASAD (sp18-bbah-0059).

MOHAMMAD MURTAZA ABBAS (sp18-bbah-0045).

COURSE NAME:
MACRO ECONOMICS.
INSTRUCTOR’S NAME:
SYED ARSHAD HUSSAIN.

DATE OF SUBMISSION:

03-01-2019.
 ACKNOWLEDGMENT

With grateful heart first of all we would like to thanks ALLAH

(SUBHANA TA’LA) and our instructor sir Arshad Hussain guide us to
complete this project, and our group members put a great efforts in
collections of the history of money and transform it in to this report. The
culmination of this project gives us much joy. We might want to
demonstrate our appreciation to Mr. Arshad Hussain, Course Instructor,
Mohammad Ali Jinnah University for giving us a decent rule for task all
through various consultations. We might likewise want to grow our most
profound appreciation to every one of the individuals who have directly
and indirectly guided us in completing this assignment.
History of Money
As the general saying, “Money makes the world go round.” As long as
there are products to consume, a monetary system will be needed to
enable the trade of these goods. Our ancestors’ methods portray us with
an interesting history lesson to help us understand why our currency
methods are ever evolving.
PAST

Before capitalism came into being, our ancestors depend on bartering to

protect the goods and services they needed to keep their families healthy
and prosper. But it wasn’t long before they understood the need for
currency system.

As shown on “The History of Money” infographic, the first form of

currency was cowry shells, in 1200 BC. As the time passes the currency
evolved as mankind developed new ways and technologies to increased
their knowledge. From shells to metals till paper, more durable and
convenient methods rose in popularity.

PRESENT

Coins and money in the paper form still in existence however in the way
of plastic that is credit cards and debit cards. In 21st century these has
proven to be the most popular monitory device. A study was published
by Federal Reserve Bank of Boston in January 2010, that there were
609.8 million credit cards held by consumers in the United States only.

Diners Club was the first credit card, developed in 1950, after analyzing
the need of carrying cash it has been observed that it is not important to
carry cash as it has been. With more customers than ever carrying
plastic, than how will coin and paper currency will be a thing of past?

FUTURE

In coming future consumer will no longer need to carry coin, paper or

plastic for buying to make their purchases. As the time passes new
technological advancement like Google Wallet and ClearXChange,
consumers will be able to use their smartphones, payment is on their
hands through smart phones whenever they are going for their
purchases.
The evolution of money is wonderful journey that have taken place over
the centuries. As the time passes technology and knowledge increases
day by day the capabilities continue to improve. Even think tank says
smartphone will one day be an archaic monetary method.
Introduction of money:
Money meaning anything that people use to pay for having services and
goods and to pay people for their work. Previously money has taken
different forms in different cultures around the world.Everything from
salt, stones, and beads to gold, silver, and copper coins till virtual
currency has been used. Regardless of the form of money, It is
mandatory the form of money needs to be widely accepted by both
buyers and sellers in order to be useful.

Advantages of money:

The following are few important advantages of money which show that
money plays a vital and significant role in the modern economy:

In past traditional economists thought that money is a just veil and it

does not affect the quantity of goods and services in the economy, that
is, the level of national product. In their view point, money only affects
the price level in the economy with no effect on the levels of real income
and employment.

They struggled that what we really want was goods and services which
satisfy the wants of consumer and promote their welfare. Therefore, in
their point of view, we must go behind the veil of money to see changes
in the total output of goods and services or in real income.

It is evident that what people really want is not money but the goods and
services which money can buy.It is the goods and services which satisfy
the wants of the people and not money as such howeverit’s not
concluded that money is of no real importance.

Modern economic life comprised complex division of labor or

specialization which has added so greatly to the productivity of the
economy will not be possible without money.

1. Money has Facilitated Exchange and Promoted Trade:

In the first place by serving as a medium of exchange and a common
measure of value, money has removed the difficulties of the barter
system and promoted trade in the economy. The problems of the barter
system is that lack of a) double coincidence of wants, b) division and c)
common measure of value are well known. By removing these hurdles,
money has greatly helped the process of exchange. In the nonappearance
of money, trade and exchanges must have been few and far between and
entailed a great waste of time and energy.

2. Money Promote Division of Labor and Productivity:

Money is of excessive importance as it promotes division of labor and
productivity in the modern economies. During the barter system,
theexchange was difficult, a man had to be self-sufficient, that is,
produced most of the goods for himself. In the absence of the money
there were many difficulties in exchanging services and goods. This
worked as an obstacle to the division of thelabour and specialisation
among the various individuals and nations.

Long ago the Adam Smith clearly brought out his now well-known book
that “Wealth of Nations” how the division of labour and
specialisationenhance productivity and the efficiency of labour force. It
is the division of labour and specialisation that has made the great use of
most efficient machines and advanced technology possible for
production of goods. Indeed, it is because of the output-augmenting
effect of division of labour that Adam Smith regarded its increase in the
division of labour as the progress in technology.

The opening up the opportunities of the effecting division of all labour,

and through facilitating exchange and also the trade of goods and
services money contributes to the expansion of production. Therefore,
money enables and increase in the amount of productions and varieties
of goods and services produced. “If modern economy was somehow
deprived of monetary mechanism and was driven back to the system of
barter, the level of output would be a much lower and the variety of
goods and services become much smaller than is enjoyed with the
money system.”

3. Money Promotes Saving:

A great significance of the money is that it contributes a great deal to the
increase in the saving of the economy. Money has made saving easier as
compare the barter system. Increase in saving leads to the increase in the
investment which determines the economic growth of country.

Further, the money has made easier the acts of borrowing and lending
the given birth to various financial institutions (banks) which promote
the concept of saving. Investment which is made all possible by saving
raises the rate of capital formation in the economy. The higher level of
output in the modern economy mainly due to the extensive use of capital
in the production process.

4. Money helps in the Maximizing Satisfaction or Profits by

Consumers and Producers:
Money isof immense advantage both the consumers and producers. To
the consumers money represents the general purchasing power. He can
buy anything that he want with the money he has and at any time
convenient to him. Since the values of goods are expressed in shape of
common measure i.e. money, the consumer easily compare the relative
money and prices of the goods and expected utilities from them.
Consumer can easily spend his given money income on various goods in
such a way that marginal utilities goods are proportional to related
prices. With this he will be maximized his satisfactions from his given
income. Thus existence of money helps the consumer to maximise his
satisfaction by acting on principle of theequi-marginal utility.

Money helps producer too. The producer caneasily compare their money
cost and money income of the different levels of output. He can easily
decide about the level of the output which maximises his profits by
equating marginal cost with the marginal revenue (MC = MR).

He can also easily decide about the units of factor to be employed by

comparing his marginal revenue product with the money payment he has
to make to it. To maximisethe profits that he can easily equate the
marginal revenue product (MRP) of factor with the marginal factor cost
(MFC) on that factor. Moreover, the workers are engaged by a producer
want its goods and services to satisfy their wants.
They want food, clothing, shelter and too much other things. The
producer cannot supply them all of these things easily. But what he can
do is to pay them in the money with which they buy the commodities as
they like at their own convince and when they need it.

5. Money can help in the Reviving Economy from the Recession or

Depression:
According to the modern economists, money may play an important role
in the bringing about the real changes. They point out that at the time of
recession or depression when there is the exists a lot of idle productive
capacity and unemployment of labour, expansion of money supply, say
through the Government’s deficit budget financed by the creation of the
new money will cause aggregate expenditure or demand shape to shift
upward. This is increase in aggregate expenditure or demand will cause
output and employment in the economy to rise it and thus it will help the
economy to recover from the recession or depression.

Beneficial effect on the output and employment of expansion in money

supply can be obtained even if Central bank of the country takes steps to
expandmoney to supply in the economy say through reduction in the
Cash Reserve Ratio (CRR) itthrough buying securities in open market.

These steps of the central bank aim at expansion in credit availability for
the businessmen. The greater credit availability will lead more private
investment which through multiplier process will cause the income,
output and employment to rise. It follows from the above that money is
not neutral in its effect on the real income and employment. In fact, as
seen just the above it plays an important role in the determination level
of real economic activities.

TYPES OF MONEY:
 Barter system (commodity money).
 Metallic money.
 Paper money.
 Plastic money.
 Electronic money.

BARTER SYSTEM:

A bartering is oldest method of exchange. This system has been used

for centuries and a long before money was invented. People exchanged
their services and goods for other services and goods in return. The
value of bartering items can be negotiated with the other parties.

Things that are used as money often have a little value of themselves.
For example, a piece of paper used to print money has not particularly
valuable. Money has value because it is an exchange medium of that
people understands and accepts. When everyone accepts that bill or coin
has a value, people can use it as a form of payment to purchase goods or
services. Before money existed, people used other systems to perform
trades. Bartering involves a direct trade for all goods and services.
Although some aspects of this transaction are similar to the exchange of
money, bartering required a time as people hammered out the terms of
the deals. Utilizing money as the medium of trade simplified
transactions. Trade and barter both precursors to the monetary system
that are using now days. Although trade and barter both are seems as
archaic, they were the business solutions for people who lived before the
convenience of credit card processing.

Bartering is the process of trading between two parties without using

money in transactions. When people barter, everyone benefits because
they receive items which they need. Bartering might involves trading
services for items. For example, you could agree to perform yard work
for someone in exchange for large amount of apples from a tree in their
field. When people choose to barter to utilize there need, they also save
their money for other needs.

METTALIC MONEY:

Metallic money considered as some precious metal. With drawbacks of

the commodity money and with economic advancement of the people,
metals came to be used as money.

This existed during the town economy stage or during the machine age.
In the beginning of iron, copper, lead, gold, silver etc were used. The
final choice however was in favor of the gold and silver due to their
scarcity. Initially pieces of the gold and silver of different sizes and
shapes were used.

Therefore metals which served as money as Gold, Silver, and Copper

etc. In recent times the baser metals like aluminum and other are use.
Advantages of the metallic money-
1) It had all the qualities of good the money.
2) Durable.
3) It had ornamental and decorative value.
4) It could be stored.

Disadvantages of the metallic money –

1) Necessary to carry out in bulk in case of large transactions.
2) Had to be the split up at every stage of exchange.
3) Difficult to assess the value of metals.
4) Not easily potrable.

With the passage of the time of metallic money system was taken over
by the government with the view of making coins uniform and giving
them a legal status. This also gave a general acceptability. The right of
the minting coins is monopoly of the state. The department of
government minting coins are called the “MINT. Later job of minting
coins was taken up by the government to bring about the uniformity of
coins. Money issued by the government are known as legal tender
money.

PAPER MONEY:

The shifting of paper money towards the use of these receipts as a means
of payment took place in the mid of17th century, when relatively rapid
the gold inflation, was the causing of re-assessment of how money
worked? The goldsmith-bankers of the London began to give out the
receipts as payable to the bearer of documents rather than the original
depositors. This meant that the note could be used as the currency based
on the security of the goldsmith, not the account holder of goldsmith-
banker. The bankers also began an issuing greater value of notes than the
total value of their physical reserves in the form of the loans, on the
assumption that they would have not have tothe redeem all of their
issued banknotes at same time. This pivotal shift changed the simple
promissory notes into an agency for the expansion of monetary supply.
As these receipts were increasingly used in the
money circulation system, the depositors began to ask for multiple
receipts tomade out in the smaller, fixed denominations for the use as
money. The receipts became a written in order to pay the amount
whoever had possession of notes. These notes are credited as first
modern banknote.
The first short-lived attempt at the issuing banknotes by the central bank
was in 1661 by Stockholms Banco, a predecessor of the Sweden's
central bank SverigesRiksbank. These replaced the copper-plates being
used instead that means of payment. This banknote issue was brought
about by the peculiar circumstances of Swedish coin supply. Cheap the
foreign imports of a copper had forced by the Crown to steadily increase
size of the copper coinage to the maintaining it’s value of therelative
to silver. The heavy weight of new coins encouraged merchants to the
deposit it in exchange for receipts. These became banknotes when
manager of the Bank decoupled the rate of the note issue from bank
currency reserves. Three years later, the bank went bankrupt, after
rapidly increasing the artificial money supply through the large-scale
printing of the paper money. The ease with which paper money can
created, by both the legitimate authorities and counterfeiters, has led
both to the temptation in times of crisis such as war and revolution to
produce paper money which was not supported by the precious metal or
other goods.
ELECTRONIC MONEY:
Electronic money is a money which exists in banking computer systems
and it is available for transactions through the electronic systems. Its
value is backed by the fiat currency and it can be exchanged into
physical form however its uses are often more conveniently electronic.
Electronic money is an electronic store of the monetary value on a
technical devices. The definition of the electronic money is becoming
more scientific and specific with developments associated with it. The
European Central Bank defines e-money in following words. “E-money
can be defined the amount of the money value represented by the claim
issued on a prepaid basis, stored in electronic medium (card or
computer) are accepted as means of the payment by undertakings other
than issuer” (ECB).

E-money is a monetary value that is stored and transferred

electronically through a variety of means – a mobiles, tablets,
contactless card (or smart cards), computer hard drive or servers.
Electronic money need not necessarily involve the bank accounts
in transaction but acts as prepaid bearer instruments. They are
often used to execute small values of transactions.

E-money is the usually issued by an institution upon receipt of funds and

given a value in a national currency like Rupee, dallor. Basically, money
is of the three types with first two being the most important. The first
category are stored value cards that contain prepaid money. Smart cards
and prepaid cards and cards used in bus like my bus card as examples of
this prepaid payment cards. Second is the software based electronic
money where the money is kept online in servers. Here, account
balances are kepton online services providers such as Payments.

Another type of the e-money is virtual currencies without an issuer and

that not denominated in the national currencies. But there are several
conditions that makes virtual currencies to be counted as the electronic
money. The ECB itself gives three areas of the electronic money.
Empirically, the stored value of the cards like smart cards used for the
standard retails payment transactions. On the other hand, software based
online payments supported by the software based on mobile wallets and
digital wallets.