- Early Forms: Animal money (cow, sheep) and commodity money (grains, shells, salt) were used first but had problems of indivisibility and storage.
- Metallic & Paper Money: Metallic money and coins developed for durability and uniformity; later replaced by paper money issued by the government/central bank.
- Bank, Plastic & Electronic Money: Bank (credit) money uses deposits and cheques; plastic money (debit/credit cards) and e-money enable cashless transactions.
- Legal Status: Legal tender money must be accepted by law (coins, notes), while non-legal tender money (cheques, bills) can be refused.
Definitions [5]
Definitions: Money
- Prof. Crowther: "Money is anything that is generally acceptable as a means of exchange and at the same time acts as a measure and store of value."
- Prof. Walker: "Money is what money does" (Shows money is defined by its functions).
- Robertson: "Anything widely accepted in payment for goods" (Focuses on exchange function).
- “Anything which is commonly used and generally accepted as a medium of exchange or as a standard of value.” — Dr. Kent
Legal Definition of Money
"Money is anything which has the legal power to act as a medium of exchange and to discharge debt."
Under this definition, only items backed by government authority — currency notes and coins — qualify as money. In the words of Robertson: "Money is anything which is widely accepted in payment for goods or in discharge of other kinds of business obligations."
Functional Definition of Money
Gowther defines money as, "Money is anything that is generally acceptable as a means of exchange and at the same time, acts as a measure and as a store of value".
Definition: Barter System
“The direct exchange of economic goods, one for another.” — Chandler
Definition: Money
"Money is a matter of four functions — A Medium, a Measure, a Standard, and a Store."
Key Points
Key Points: Concept of Money
- Money eliminates barter system problems by providing a common medium of exchange.
- Three main functions: medium of exchange, measure of value, store of value.
- Must be generally acceptable to function as money.
- Modern economy completely depends on money for smooth transactions.
- Digital payments are the newest evolution in money's history.
Key Points: Barter System
The barter system’s limitations—double coincidence of wants, no standard value, storage issues, indivisibility, and deferred payments—led to the invention of money, which streamlined trade and economic growth.
Key Points: Types of Money
Key Points: Functions of Money
- Medium of Exchange & Measure of Value: Money is used to buy and sell goods and services and to express prices, income, and expenditure in a common unit.
- Standard of Deferred Payments & Store of Value: Money makes future payments (loans, wages) easy and allows saving for future needs.
- Transfer of Value & Liquidity: Money helps transfer value across persons and places and is the most liquid form of wealth.
- Basis of Credit & Economic Measurement: Money forms the base of bank credit and helps measure national income and other macroeconomic variables.
