Evolution of Money and its Types

 

Topics:

·       Types of Money

1.    Commodity Money

2.    Metallic Money

¨    Full-bodied coins

¨    Token Coins

3.    Paper Money

¨    Fiat Money

¨    Legal Tender

4.    Bank Money

5.    Crypto Currency

¨    Blockchain technology

¨    Rise of crypto currency

¨    Ways to obtain it.

Evolution of Money and its Types:

v Commodity Money:

§  Commodity money is money whose value comes from a commodity of which it is made. It consists of objects of values and of Rear use.

§  EX. Iron belts, Bear Pelts, Cocoa Beans, Whale Teeth, Gold Nuggets.

§  Several types of commodity money can be used in a particular region at a same time.

§  Disadvantages:

·      They are perishable (likely to decay or go bad quickly) in nature.

·      They do not have uniform shape.

·      They can be in a mixed form so it is not pure.

·      They can be different for different region so one can easily refuse to accept it.

v Metallic money:

§  Metallic money are the money which are issued by central authority of the region inform of metal and that acts as a Legal tender for that area.

§  These types of money had a large use in Ancient Times.

·       Traders and Kings used to Stamp their Coins for Trust and Uniformity.

·       Generally Gold And Silver Were used as a common metal of making coins. They were Full Bodied Coins.

·       Full bodied Coins are one which has Real value more than Face value. Ex. if 10rs coin was there but the cost of making that coin was 20rs.

·       They used to make some designs in it to make it memorable i.e. King playing veena, Shooting Animals, Standing with wife and family.

EX. Gupta coins, Kushana Coins, Indo Greek coins etc.

·       Sometimes Bronze was also used to make the coins. They Were known as Token Coins.

·       Token Coins are one which has a real value less than face value. EX. 10rs. coin and its making cost will be 7rs.

·       Generally token coins comes to uyse when king’s treasury gets poor.

EX. Delhi sultanate coins(silver Tanka), Aurangzeb coins, Roman coins, Tughlaq coins.

 

v Paper Money:

§  Paper money is a paper currency that is circulated for the transaction involved in acquiring good and services throughout one country.

§  Fiat Money:

To become Fiat money it must fulfill two conditions simultaneously.

·       It must be in form of currency notes (or coins if approved by govt.).

·       It must be issued by Government / central bank.

 

§  Legal Tender:

It must fulfill two below conditions

·       It must be a Fiat Money.

·       It should be legally valid throughout the country for all type of transactions.

v Bank Money:

§  Bank money is a money which is deposited in bank in any form, Which has a legal record in the bank and one can use that money to buy any kind of goods and services through different services provided by bank.

EX. Cash, Demand Draft, Cheque, online Transactions, overdraft.

v Crypto currency:

§  Crypto currency is a Digital/virtual currency Created and stored using Blockchain technology.

§  Blockchain Technology:

·       A secured decentralized database that maintains a Continuously growing list of record of transactions.

·       That has no limited entry that means old entries cannot be deleted and new entries will be visible.

§  Rise of Crypto currency:

·       Anarchist groups lost faith in fiat money after subprime crisis(2007) reduced purchasing power of US Dollar.

·       They also disliked all types of bank money.

·       So, in 2009 an anonumous user Satoshi Nakomoto launched Crypto currency called ‘bitcoin’.

§  Ways to obtain cryptocurrency:

·       MINING: mining of blockchain using powerful computers.

·       Selling it: selling it to minor users for goods and services.

·       Exchanging Legal Tender: exchanging it to users and getting real money.