What is Money?

Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts.

What are the functions of Money?

Medium of Exchange

(acceptable in exchange for goods and services)

A Unit of Account

(stable unit of measure to monitor past and future performance)

A Store of Value

(any commodity or asset that would normally retain purchasing power into the future and is the function of the asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved)

A Standard of Deferred Payment

(widely accepted way to value a debt, thereby allowing goods and services to be acquired now and paid for in the future)

What are the properties of Money?

Fungibility.

Units must be capable of mutual substitution. (interchangeability)

Portability.

Easily carried and transported.

Durability.

Able to withstand repeated use.

Cognizability.

Its value must be easily identified.

Divisibility.

Divisible to small units.

Scarcity.

Its supply in circulation must be limited.

What are the types of Money?

Commodity Money

Many items have been used as commodity money such as naturally scarce precious metals, conch shells, barley, beads, etc., as well as many other things that are thought of as having value. Commodity money value comes from the commodity out of which it is made. The commodity itself constitutes the money, and the money is the commodity. Examples of commodities that have been used as mediums of exchange include gold, silver, copper, rice, Wampum, salt, peppercorns, large stones, decorated belts, shells, alcohol, cigarettes, cannabis, candy, etc.

Representative Money

Money that consists of token coins, paper money or other physical tokens such as certificates, that can be reliably exchanged for a fixed quantity of a commodity such as gold or silver. The value of representative money stands in direct and fixed relation to the commodity that backs it, while not itself being composed of that commodity.

Fiat Money

Money whose value is not derived from any intrinsic value or guarantee that it can be converted into a valuable commodity (such as gold). Instead, it has value only by government order (fiat). Usually, the government declares the fiat currency (typically notes and coins from a central bank, such as the Federal Reserve System in the U.S.) to be legal tender, making it unlawful not to accept the fiat currency as a means of repayment for all debts, public and private.

10,000+ Years Ago

Barter was the first method of trade and pre-dates money. Barter involves the exchange of resources and/or services for mutual benefit between 2 or more parties. Barter has survived throughout the ages
9000 - 6000 BC (Cattle)

Cattle, which can include cows, sheep, camels and other livestock, are considered to be the first form of what’s considered money, which you can argue is a “standardized” form of barter. And as many cultures began farming, items like grain and other vegetable and plant products also became standard.
1200 BC (Cowrie Shells)

These shells of a mollusk are widely available in shallow areas of the Pacific and Indian Oceans. China was the first area of the world to use these shells as money, but their use spread to many other civilizations. Many areas of Africa used cowrie shells as currency up until the mid-20th century.
1000 BC (First Coins)

Near the end of the Stone Age, China began making imitation cowries out of bronze and copper, which are base metals. These are considered by many to be the earliest form of metal coins.
500 BC (Modern Coins)

In other parts of the world, round coins were developed out of lumps of silver and stamped with different gods and emperors depending on the location. The earliest silver coins came out of modern-day Turkey, but techniques were further refined by the Greek, Persian, Macedonian, and Roman empires.
100 BC - 1800 AD

Even though coinage as we know it began around 500 BC, other items were used as money too. Leather in the form of white deerskin (1-foot square pieces) was popular in China. There were also a few obscure forms of money that might be called “brutal” by some. The phrase “To pay through the nose” for example, comes from Danes in Ireland, who slit the noses of those who didn’t pay Danish poll taxes.
806 AD (The first paper money)

Paper banknotes first appeared in China and were used from around the 9th to 15th century. Over time, production of paper notes continued to grow to the point where their value rapidly depreciated. Around 1455, paper money disappeared in China for several hundred years. It re-emerged in Europe a few decades later, but it was another 3 centuries before it was considered common.
1792 - 1816 AD (The Gold Standard)

Although the U.S. began tying its currency to precious metal with the 1792 Mint and Coinage Act, 1816 is considered the seminal year, which is when gold was adopted as the official standard of value in England. Guidelines were developed to allow for a fixed, non-inflationary production of banknotes that represented a specific amount of gold.

**Coinage Act of 1792**

The Mint Act officially established a mint, regulated coins in the U.S., established the Silver Dollar as the unit of money in the U.S., declared it legal tender, and created a decimal system for the U.S. currency.

Coinage Act of 1873

This Act was a general revision of the laws relating to the Mint of the United States. In abolishing the right of holders of silver bullion to have their metal struck into fully legal tender dollar coins, it ended bimetallism in the United States, placing the nation firmly on the gold standard.

Federal Reserve Act of 1913

At the time of the Federal Reserve's creation, the law provided for notes to be redeemed to the Treasury in gold or "lawful money." The latter category was not explicitly defined, but included United States Notes, National Bank Notes, and certain other notes held by banks to meet reserve requirements, such as clearing certificates.[8] The Emergency Banking Act of 1933 removed the gold obligation and authorized the Treasury to satisfy these redemption demands with current notes of equal face value (effectively making change).

1914 $10 FRN, Federal Reserve Bank of Chicago

Emergency Banking Act

In March 1933, the Emergency Banking Act gave the president the power to control international and domestic gold movements. It also gave the secretary of the treasury the power to compel surrender of gold coins and certificates. The administration waited before employing these powers, in hope that the situation would correct itself, but gold outflows continued.
On April 20, President Roosevelt issued a proclamation that formally suspended the gold standard. The proclamation prohibited exports of gold and prohibited the Treasury and financial institutions from converting currency and deposits into gold coins and ingots. The actions halted gold outflows.
In January 1934 the Gold Reserve Act returned stability. This solidified the emergency measures enacted in 1933, resurrected the gold standard, and re-established financial links between America and the rest of the world.

Our Money Becomes Currency

On **July 23, 1965**, President Johnson approved the Coinage Act of 1965, which removed silver from circulating coins and authorized that clad coins be used for the half dollar, quarter, and dime.

Currency Collapse

What Happened in 1971?

The coming of the Great Depression brought major changes in money and is considered the beginning of the end for the gold standard. The first step was revising the gold standard, which involved confiscating individual gold holdings and increasing its price, which essentially devalued the paper currency that represented the gold. By the 1970s, the dollar was completely delinked from gold - becoming paper backed ONLY by a promise.

What Happened in 1971?