International financial relations - money and banking

1. Money

“There is no denying that views on money are as different to describe as shifting clouds” (Schumpeter).

Money appeared long ago, and over the years has changed profoundly. The word "money" is believed to originate from a temple of Hera, located on Capitoline, one of Rome's seven hills. In the ancient world Hera was often associated with money. The temple of Juno Moneta at Rome was the place where the mint of Ancient Rome was located. The name "Juno" may derive from the Etruscan goddess Uni (which means "the one", "unique", "unit", "union", "united") and "Moneta" either from the Latin word "monere" (remind, warn, or instruct) or the Greek word "moneres" (alone, unique).

The starting point for the emergence of money was the exchange that was made in the form of barter. Due to the amplification of the trading acts, in order to facilitate them, some goods took the role of intermediary, as well as of gauge used for the measurement of other goods. These were the first forms of money which were fixed on some objects or animals.

Later on, as the society developed and the trades kept rising, the coins – standardized pieces with a certain weight, purity and distinctive signs in order to be recognized- made from precious metals were confectioned and, only after the 16th century, were also added the bills to the coins in circulation, also called paper coins. The first bills appeared in Holland, starting from the custom of merchants to keep their gold and silver pieces in banks. To confirm this, the Bank issued a document, a ticket to the carrier, which was inscribed with the nominal value of the pieces submitted.

The ticket contained the confirmation that the deposit had been made and bank’s commitment to return at request the appropriate amount of metal parts to anyone present this ticket. The issuance of currency in the form of metal parts and machines became the exclusive prerogative of the central bank, called the bank of issue, which was eliminated in 1971.

The evolution of money continued with the appearance and expansion of scriptural money (account money), which exists in the form of bank documents, whose size increases / decreases depending on the purpose of accounting records in which money moves from one owner to another or from one form to another.

Currently, the concept of money means coins, scripts, notes and other legal instruments, with specific forms and names, different from one country to another, which are generally accepted as a means to exchange and payments recorded an economic cadre given. The Nobel laureate for economics, Paul Samuelson estimated that the flow or the movement of money represents “the blood that irrigates our economic system”.

There are several types of money that vary in liability and strength. Due to the fact that the society has modified the money at different types, several types of money were introduced. When there was ample availability of metals, metal money came into existence, but later it was substituted by the paper money. At different times, several commodities were used as the medium of exchange. So, it can be affirmed that according to the needs and availability of means, the types of money has changed.

Some of the major types of money are:

Commodity Money

Whenever any commodity is used for the exchange purpose, the commodity becomes equivalent to the money and is called commodity money. There are certain types of commodity, which are used as the commodity money. Among these, there are several precious metals like gold, silver, copper and many more. Again, in different parts of the world, seashells (also known as cowries’ sells), tobacco and many other items were in use as a type of money & mediums of exchange.

Representative money

In 1875 economist William Stanley Jevons described what he called "representative money as being money that consists of token coins, or other physical tokens such as certificates, that can be reliably exchanged for a fixed quantity of a commodity such as gold or silver. The value of representative money stands in direct and fixed relation to the commodity that backs it, while not itself being composed of that commodity.

Fiat Money

It is the type of money that is issued by the command of the sovereign. The paper money is generally called as the fiat money. This type of money forms a monetary standard. It has been made mandatory by law to accept the fiat money, as an exchange medium, whenever it is offered to anyone. Fiat money is of no value as a physical commodity, and derives its value by being declared by the government to be a legal tender; that is, it must be accepted as a form of payment within the boundaries of the country.