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What is Money?
One of the first definite moves in this direction was the European Monetary Union that launched the combined European currency the "Euro" in the global money market.
History of Money:Money is almost as old as the beginning of private property itself. Between 9000 BC and 6000 BC the domestication of cattle and cultivation of crops resulted in the earliest form of money, as these two commodities have all the attributes required to function as a valuable mode of exchange.
It is understood that cattle preceded crops as the earliest form of money, and that this form of exchange was in existence in many primitive societies as late as the 20th century.
Commodity Money:Any commodity used as a medium of exchange is commodity money.
The best known examples of commodity money are gold, copper, and silver, although tobacco and cowrie shells are said to have been used as money at different points of time.
Fiat Money:Fiat money is money by "fiat," or command of the law of the land. It is a monetary standard that people of that particular area are required by law to accept as a medium of exchange.
Fiduciary Money:Fiduciary money is based on the promise by a participant of the transaction to pay in commodity money or in fiat money. The contemporary monetary systems are mainly fiduciary, e.g. bank money, which is also called fiduciary money as it is based on the trust that the bank enjoys with respect to its practice of "pay as promised." In today’s globalized monetary system the most pertinent form of fiduciary money is the credit card, a breakthrough system of monetary transaction that has elevated the status of the consumer like never before.
Functions of Money:Functions of money can be traditionally divided into four headings:
- Medium of Exchange:
This is the function that defines money; whatever is given in exchange for the things that are bought is the medium of exchange.
- Unit of Account:
The unit in which values are stated, recorded, and settled is the unit of account, and despite the similarities with medium of exchange there are pronounced differences.
- Standard of Deferred Payment:
The unit in which debt contracts are affirmed is the standard of deferred payment, meaning a payment made in the future. The standard of deferred payment also has subtle similarities to the medium of exchange.
- Store of Value:
This is money or a medium of exchange set aside for the future to maintain the value of wealth.