Money and banking

Commerce study Manual STUDY MANUAL|PDF NOTES|SYLLABUS|REVISION

Money is any asset that is generally acceptable as a means of payment to settle transactions as well as a medium of exchange.it is anything that is generally acceptable for payment of debts.Stages in development of money

Historically, the development of money in the present form has evolved through the following stage;

  1. Commodity money

This is the money that has a value apart from its use as money. In primitive agricultural stages, domestic animal like cattle, goat, horses, cow etc were used as money. These commodities lacked the essentials of durability; homogeneity etc so could be used any more. Later, there was the use of precious metals of gold, silver and copper i.e. metallic money. The uncoined metals as a medium of exchange further created difficulties. People were unable to know the eight and value of pieces of bullion at sight. This led to the replacement of the unstandardized metal ingots with a standardized coinage. The metallic coin had a quarantined weight of value a competent authority. Thereafter, the coins also proved a failure as a good medium of exchange. They were clipped, abraded and melted down. Efforts were then made to find out a better unit o account.

  1. Convertible paper money

This was the second stage where paper was used to substitute commodity at rate specified on the currency. Before 1914, the bulk of bank notes were convertible into gold. The bank had to pay the bearer a specific amount of gold on demand. In today’s economy the paper notes are convertible notes. They are neither fully or fractional convertible into gold.

  1. Deposit money.

This consists of deposit at bank and financial institution which are subject to withdrawals Cheques are a safe way of transferring the ownership of deposit in financial institutions.



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