Chapter 2: Concept of Money
Dr. Edita Claridad Bayona
University of Makati
Basic Finance
How Money was Invented
The oldest trading system is Barter. Barter is a
trading system use wherein goods are exchange
into goods and services into services.
Imagine that we are still using barter as our
system of exchange, what do you think are the
difficulties that we may encounter?
Objects Used as Money Throughout History
Mollusk – used by North American Indians for
2,500 years the shell of detalium. Dentalia
were the only shells that became true
currency in that part of the world due to its
origin where it come from a limited area (in
West Coast of Vancouver Island in Canada)
that held their value.
Then this was replaced by wool blankets.
Money throughout the world in various dates
and place
Object Place Date
Knives rice spades China Around 3000 B.O
Cattle and clay tablets Babylonia Around 2500 B.C.
Wampum (beads) and American Indians of the Around A.D. 1500
beaver fur Northeast
Tobacco Early American Colonists Around 1650
Whales teeth Pacific peoples on the Around 1650 until early
island of Fiji 1900s
Disadvantages of Using Objects as
Money
• Objects are perishable
• Objects are indivisible
• Objects are not easily
portable and it is very
inconvenient to bring
1,000 cavans of rice to a
certain place where they
will be used as payment.
What is Money?
• Money is anything used to make
payment, for goods and services or a
debt obligation. (Cargill)
• Money is any generally accepted means
of payment that will be taken in
exchange for goods and services ( Kohn)
• Money is anything that is generally
acceptable medium of exchange
(Mishkin)
• Money is a liquid store of value. It is
generally acceptable medium of
exchange. (Kidwell and Peterson)
Functions of Money
• Serves as a unit of account
• A Medium of Exchange
• As a store of value.
Kinds of Money
• Commodity Money- these are money with
value as a commodity and as medium of
exchange.
Types of Commodity Money:
– Full-bodied commodity money which has its
monetary value or exchange value equal to that
of its intrinsic value and
– Token commodity money is one whose monetary
or exchange value is higher that its intrinsic value.
Kinds of Money
• Credit Money is money that is
backed by a promise to pay.
• Fiat Money refers to paper
currency decreed by the
government as legal tender but
not convertible into coins or
precious metal. It is backed by a
government promise that is it
legally, acceptable as a means of
exchange for products and
services.
Name of Country Using it Name of Country Using it
Currency Currency
Bolivar Venezuela Real Brazil
Dinar Algeria, Jordan, Kuwait and Dirham Morocco, UAE
others
Yuan China Zloty Poland
Dollar Australia, Canada, New Zealand, Drachma Greece
Singapore, US and others
Franc Belgium, France, Switzerland and Guilder Netherlands, Suriname
others
Koruna Czech Republic, Slovak Republic Krona Iceland, Sweden
Krone Denmark, Norway Lira Italy, Turkey, others
Peseta Spain Mark Germany
Peso Argentina, Chile, Columbia, Pound Egypt, Great Britain,
Philippines, Uruguay Lebanon and others
Rand South Africa, Namibia Riyal Saudi Arabia, Qatar
Ruble Russia Rupee India, Pakistan and others
Schilling Austria and others Yen Japan
Electronic Money: A New Form of
Money
Advances in technology made possible for the
introduction of newer forms of money. The first
to be developed is electronic money which
simply means money stored electronically and is
also known as e-money.
Forms of E-Money are:
• Debit Cards
• Stored-value Cards
• Electronic Cash
• Electronic Checks
• Debit Cards are used to transfer funds from the bank
account of a buyer to the bank account of the seller. This is
used in the payment of goods and services bought in
supermarket or any establishment accepting such forms of
payment.
• Stored-valued card is one that contains a fixed amount of
digital cash.
• Electronic Checks is a form of money used by those who
make transactions through the internet. The electronic
checks is written by the buyer through his personal
computer, then sends the electronic checks to the seller via
internet. The seller sends the checks to his bank, which
effect the transfer of money from the buyer’s account to
the seller’s account, if found that the check is valid.
• Electronic Cash is a form of electronic money that is used
to buy products through the internet.
How E-Cash Made Possible?
• The consumer sets up an account with a bank that
has links with the internet.
• The consumer gets e-cash and have it transferred to
his personal computer.
• The consumer surfs to an Internet store and selects
the buy option for a particular items.
• The e-cash is automatically transferred from the
personal computer of the consumer to the computer
of the internet seller.
• The internet seller effects the fund transfer from the
consumer’s bank account to his account.
• The goods are shipped to the consumer.
Forms of Money Drawback
Object like cattle, tobacco, rice, Not durable
etc.
Metals like gold and silver Not easy to transport
Paper Money Subject to counterfeiting, can be
stolen in large amounts
Checks Not generally acceptable
Electronic Money Requires special equipment
Characteristics of
Good Money
• Divisibility
• Portability
• Durability
• Stability
• Difficult to Counterfeit
• Recognizable
Determining the Money
Supply
• MI- consisting of currency, demand deposits at
commercial banks, other checkable deposits at the
banks, credit unions, and thrift institutions and
traveller’s checks
• M2- M1 plus noncheckable savings accounts and
small denomination time deposits and depository
institutions, money-market deposits accounts,
shares in money market, mutual funds, and retail
repurchase agreements.
• M3- M2 plus large denominations time deposits at
depository institutions, shares in institution only
money market funds, and large denominations
repurchase agreements
• L- M3 plus other liquid financial assets such as
bankers acceptances, commercial paper, short-
term treasury securities and savings bonds.
EVOLUTION OF THE PHILIPPINE
CURRENCIES
CURRENCY USED PERIOD
BARTER SYSTEM, NO CURRENCY PRE-SPANISH PERIOD, 1 PHASE
GOLD, WAX, COTTON, SMALL SHELLS, DYE-WOOD, CARABAO PRE-SPANISH PERIOD, 2 PHASE
HORNS, METAL BELLS AND SILVER WIRES
PILONCITO, A CONICAL GOLD COIN WITH AN EMBOSSED PRE-SPANISH PERIOD, 3 PHASE
INSCRIPTION
PENNIFORM GOLD BARTER RING BETWEEN THE 8TH AND 14TH CENTURIES
EUROPEAN SILVER COINS INTRODUCED BY MAGELLAN IN 1521
SILVER COINS FROM THE MINTS OF MEXICO & OTHER LATIN BROUGHT BY THE GALLEON TRADE FROM
AMERICAN COUNTRIES MEXICO IN 1565
SPANISH BARILLA (FIRST COIN MINTED IN THE PHILS) 1729 ONWARDS
SPAIN’S EIGHT-REAL COINS CIRCULATED THROUGHOUT THE 1723 TO 1771
WORLD
CURRENCIES OF MEXICO, PERU, BOLIVIA, CHILE, ARGENTINA AND 1810 ONWARDS
OTHER LATIN AMERICAN COUNTRIES
NAME OR NATURE ISSUING PARTY WHEN ISSUED DENOMINATION
OF PAPER MONEY
PESO FUERTES
REPUBLICA FILIPINA
PAPER MONEDA
SILVER
CERTIFICATES
PESOS
BANK NOTES
SPANISH VERSION
PESO-EMERGENCY
CIRCULATING
NOTES
TREASURY
CERTIFICATES
BANK NOTES
ENGLISH VERSION
MICKEY MOUSE
MONEY
