World'S Significant Invention
In this essay, I will be arguing about the money system being the best invention of all times thus far. I will be stating its importance which is its use as a medium of exchange, the history behind it as the barter system was used before, its functions such as it being used as a standard deferred payment and how it can never be replaced by something else when it comes to having a common ground for the exchange of goods as it makes the exchange very fair hence making it the best invention. Money is defined as “anything that is generally accepted in payment for goods and services or in the repayment for debts. ” (Mishkin, 1992, p. G-7). Money is an item or variable record that is accepted as payment for goods and services and repayment of debts in a particular country or socio economic context.
As much as money is one concept, it has its sub categories where it’s divided into different parts which are unique. Each country has its own money with its own value compared to other money from other countries. This is helpful because it sets each country in its own league and as a result each country can see how they are performing. Money is mistakenly understood to only be cash money that is created by a central bank by minting coins and printing banknotes and this is not the case as cash money which is fiat money is part of the categories under money. The value for money is declared by a government to be legal tender, which must be accepted as a form of payment within the boundaries of the country, for all debts, public and private. The cash money supply of a country consists of currency (banknotes and coins). The currency of a country determines the economic worth of the country.
Currency puts countries at an advantage as they will know at which rate they will sell and buy goods and the greater the value of the currency the lower the rates the country will pay for goods purchased. “A price for any good is the amount of money it takes to get that good and inflation occurs when the price of goods increases, in other words when the currency becomes less valuable relative to those other goods” (http: //www. thoughtco. com/why-paper-money-has-value-1146309). This is also very beneficial for the citizens of the country as the prices of the goods they will want to purchase will be low and if the country’s currency value is very low, that country’s government will try by all means to strengthen their currency value and as a result more jobs will be created so as to increase the country’s GDP and GDI, in this case both parties win as more citizens become employed and the country’s GDP increases. In the olden days there was no money system instead they used the batter system which was a bit unfair to the parties that would engage in this system. This is because one could get something of less value in exchange of the object with higher value. As the site https: //wonderopolis. org/wonder/who-invented-money states that “There is no specific person who is known to have come up with the money concept but it is believed that metal objects were first used as early as 5000 BC. Around 700 BC, the lydians became the first western culture to make coins, other countries and civilizations soon began to mint their own coins with specific values”. Since then, this system has been beneficial for all parties involved in the exchange of goods.
Everyone sells or buys goods at their worthy price, most people don’t get ripped off, everyone gets what he or she deserves. As the years went by the money system was never replaced, instead it was improved for the better as the technology improved and that has helped in more ways than one. As mentioned earlier, we ended up having a money system with different sub categories under it like commodity money whose value comes from the commodity which it is made of like gold, silver, platinum etc. This type of money consists of goods that have value in themselves as well as value in their use as money. Then we have representative money which is any medium of exchange that represents something of value, but has little or no value of its own such as gold certificates and silver certificates, in this sense it can be called commodity backed money and can also be defined as any type of money that has face value greater than its value as material substance. There’s also fiat money that is also known as cash money which is the one that is commonly used, it is a currency that a government has declared to be a legal tender, but it is not backed by a physical commodity. The value of fiat money is determined by the relationship between supply and demand of the country rather than the value of the material from which the money is made off. All of these types of money are useful in their different ways but there is this one that most people depend on to buy large possessions such as cars and property, others even use this type of money as a primary source to fund their studies, this type of money is called commercial bank money.
According to the site https: //www. moneyland. ch/en/commercial-bank-money-definition “The term ‘commercial bank money’ describes the portion of a currency which is made of debt generated by commercial banks. It is the opposite of ‘central bank money’ or ‘sovereign currency’, which is issued by a central bank, such as the Swiss National Bank in Switzerland or the Federal Reserve Bank in the U. S. Commercial bank money is created when banks make use of fractional reserve banking to issue loans worth many times the value of the actual sovereign currency they hold (typically up to 10 times more). When a bank lends out money which it does not actually have, that money is generated as scriptural money, meaning it only exists on paper. This commercial bank money currently makes up a large part of the money in circulation”. The money system has also created more opportunities of generating more income for people and one of these opportunities that is commonly known is liquid assets. According to the site https: //www. investopedia. com/ask/answers/032715/what-items-are-considered-liquid-assets. asp “A liquid asset is cash on hand or an asset that can be readily converted to cash. An asset that can readily be converted into cash is similar to cash itself because the asset can be sold with little impact on its value”, this type money is similar to fiat money, the difference is that fiat money is physical and liquid assets are electronic.
The site https: //www. investopedia. com/ask/answers/032715/what-items-are-considered-liquid-assets. asp also states that “Cash on hand is considered a liquid asset due to its ability to be readily accessed. Companies can use this type of money to settle their current liabilities. For example, the money in your checking account, savings account, or money market account, is considered liquid because it can be withdrawn easily to settle liabilities”. Other Examples of liquid assets that are near money include bonds and widely traded foreign currencies. The one of the many advantages of money is its general acceptability it will cease to be current. It possesses general acceptability because as a commodity it has some intrinsic utility independent of its value for monetary purpose. It possesses high value in small bunks and as a result one can use it in different quantities. The material of fiat money is capable of division; and the aggregate value of the mass after division is almost exactly the same as before. If a diamond was to be used as money and by chance it drops from one’s hand and it breaks, one will suffer an enormous loss. This is not the case with precious metals which are used as commodity money. Their portions can be melted and re-melted together any number of times without much loss.
The commodity money material is malleable it capable of being melted, beaten and given convenient shapes. It also possesses the attribute of impressionability so that it may easily receive the impressions. It’s cognizable meaning it is easily recognised and distinguished from all other substances. As a medium of exchange, money is continually handed about; and it will causes great convenience as every person receiving it does not have to scrutinise, weigh and test it. It has certain distinct marks which nobody can mistake. Gold and silver are at once recognised by their distinctive colour, metallic and heavy weight for small bulk, and, as such, satisfy this condition admirably. Money is not subject to fluctuations in value. The value of its material, which is used to measure the value of all the other materials, is stable. Money serves as a medium of exchange, as a store of value, and as a unit of account medium of exchange. Money's most important function as a medium of exchange to facilitate transactions. When money is used to intermediate the exchange of goods and services, it’s performing a function as a medium of exchange. It thereby avoids the inefficiencies of a barter system, such as the ‘coincidence wants’ problem. Money’s most important usage is as a method for comparing the values of dissimilar objects.
All in all, Fiat money can be passed from hand to hand and is kept in reserve, it does not easily deteriorate, either in itself or as a result of wear and tear. It does not evaporate like alcohol, nor decay like wood, nor rust like iron, it has high durability which is also an advantage as you can keep it for years and you will still find it in the same form you left it in. In order for a commodity to be used as a measure of value, it is essential that its units are similar in all respects and fiat money is homogeneous, its equal weights have the exact same value. Liquid assets are electronic and can easily be converted to fiat or commodity money and commercial bank money helps when one wants to buy large possession.
