The development of money

How can we define money?

Anything that is widely accepted as a means of making payments such as coins, notes and electronic balances held in bank accounts

How were goods and services traded before money was created?

People used a system of barter

What is a weaknesses of the barter system of exchanging goods and services?

It has many limitations

What are the limitations of using the barter system of means of exchanging goods or services?

It relies on a ‘double coincidence of wants’, meaning it relies on the two parties agreeing a rate of exchange

• Could be a time-consuming process

What systems were created to fix the limitations of barter?

Led to systems where the local community used an item they all valued as a means of payment

E.g. Japan used rice as ‘money’

When can the use of valuable items such as cattle or grain as ‘money’ be traced back to?

9000 to 6000 BCE

What are the practical drawbacks with these early forms of money?

• Some items are not durable - pigs can die and grain can perish if not stored correctly

• Some items cannot be divided into small amounts to enable people to make low-value purchases or to give change

• Many items were not portable - fei stones used as money on the Pacific island of Yap

What was an important stage in the development of money?

The changing from a intermediate item that had value in its own right (an intrinsic value) to an item that represented value but had no value of its own

Where does the word ‘money’ thought to have its roots in?

Ancient greece

• Where a mint was located next to a temple to the goddess Juno

• The coins produced at this mint from about 300 BCE onwards bore an image of the goddess and became known as moneta, later ‘money’

When was the idea of paper banknotes developed?

By China in the 17 century

Why where copper coins replaced?

Merchants who traded high-value goods found it impractical to carry large quantities of copper coin

How did this system of paper notes work?

• Merchants deposited the coins with a trusted person, who have them written receipts stating how much was stored in their name.

• Rather than paying for goods with actual coins merchants paid by passing the receipts for the coins to the person selling the goods, who could claim the coins in storage.

• Over time, people no longer claimed the coins from storage be cause buyers and sellers agreed that the banknote represented the value of the coins and would accept the banknote as payment.