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What does money signify ?
Agenda
The ladder of economic civilization
The second evolutionary step
Gold Standard & Brettons Woods
The third evolutionary step
The fourth evolutionary step
The first evolutionary step
What does Money Signify
Medium for exchange of Value Count of ‘your’ value addition to society Success & Self Esteem It's the center around which world
revolves “ Its all about money, honey”........
Why was Money Invented ?
Specialization of Labour made economic exchange a fundamental necessity
When the division of labor has been once thoroughly established, it is but a very small part of a man’s wants which the produce of his own labor can supply..
– Adam Smith, Wealth Of Nations
The Ladder of Economic Civilization
Stages in development of moneyBarter tradeCommodity moneyStandardized CoinageRepresentative MoneyFiat MoneyCredit MoneyElectronic Money
Step 1 – Barter Trade
Most primitive form of reciprocal exchange
Barter involves only two people; each has something the other wants
“Hungry weaver is searching for a naked farmer” LimitationsCoincidence of wantsPerishability Inefficient
Commodity Money
Valued Commodity as means of exchange
Early examples – Shells, Food Grains, Cow etc
Evolved into Metallic Money – Durable, Fungible and Portable
The First Evolutionary Step
Standard Coinage Egypt used gold bars in 400 BC Discovery of Touchstone – tool for
assaying value of gold in an alloy Concept of Standard Coinage was
introduced Govt. assertion that value of money lay
in the emblem Debasement of Currency – coin as unit
of value (not weight)
The First Evolutionary Step
The Second Evolutionary Step
Representative Money Token or certificate (made of paper),
backed by an equivalent reserve Started with 'Warehouse Receipts'
issued by ‘Girobanks’ Receipts as medium of exchange Soon receipt issuance overshot actual
reserves to accommodate loan demand Girobanks introduced std accounting
methods & deposit accounts for depositors
The Second Evolutionary Step
Fiat Money Money, not backed by reserves Derives stand-alone value by
government decree Money is a 'Forced / Legal Tender'
Gold Standard – 1901 to 1932
Money system in which regions' common medium of exchange are paper notes freely convertible into pre-set fixed quantities of gold
Gold standard was intended to force monetary prudence by respective govt.
Abandoned due to high war expenses followed by deflation / depression
Brettons Wood – July 1944 Conference after 2nd World War to discuss
financial architecture Resulted in
Formation of IMF and IBRD (World Bank)
Gold was replaced with Dollar as international reserve currency
However dollar was pegged to gold at pre-fixed rate
Currencies were made convertible
The Third Evolutionary Step
Credit Money IOUs, Promissory Notes, Overdraft Exists in conjunction with other forms
of monies Enabled 'Fractional Reserve Banking'
– thereby increasing money supply When over-leveraged, has led to
financial bankruptcies