The Essential Facts of Money
Posted by lennoxOct 12
The Essential Facts of Money
Time is the most valuable currency to a man; procrastination is the killer of time.
What is Money?
Money is whatever you want it to be, whatever value you give it. in fact your idea is the most value forms of money because it is from your idea that money is created. Notes and coins in your wallet are only a representation of money. Couple with the ease of transferring it from one person to another.
Financial literacy in schools curricula
I am a staunch advocate of financial literacy being infuse in the school curricula in particular the primary school curriculum. This would instill financial literacy at an early stage of a child educational development, and making them more knowledgeable and forthright in the context of making inform financial decisions which plays such a vital role in almost every facets of daily our life.
The History of Money
Before money came into circulation, barter was the preferred method of exchange. It was a system where goods were exchange for other goods. This system had some inherent problems, such as not having the goods that one would need to exchange, or the mechanism necessary to establish the value of the good being exchanged nor was there any common measure of value. Although thwarted by problems, some amount of barter is still practiced today among friends or even some countries.
Money is said to be invented by the Greeks in 650 BC and eventually spread throughout the world. Money is a conduit of the transfer of property in the context of goods and services vis-à-vis a method of exchanged, as was used in the barter system. This medium of exchange must be accepted by everyone. In fact for anything is to be accepted as money it must have some essential functions, such as:
Ø Generally accepted because it is backed by the government that gives it legal tender status;
Ø Acts as a medium of exchanged;
Ø Acts as a measure of value;
Ø Acts as a standard of deferred payments;
Ø Acts as a store of value in term of durability and not saving due to inflation;
Ø And easily divisible and readily convertible,
Ø All these characteristic can be attached to notes and coins, others forms of money would fail some of the standard test.
(1) Cowry shells were used as money back in China in 1200 BC. They also used metal as money such as knives, spades etc. It was from this method that the modern concept of coins came about. Egyptians started using precious metal as currency around 2500 BC. The metals used were gold and silver, as you would have known, these metals had a lot of intrinsic value.
(2) Paper money or leather currency was invented by China in 118 BC but was eventually abolished in the 15th century due to incidence of hyperinflation caused from an over printing of paper money.
(3) The USA introduced paper money, “greenback” as it is popularly called, in 1862 as a consequence of the U.S. Civil War.
(4) Today’s monies are not commodities but fiat. It has lost its intrinsic value because there is no precious metal backing it. The Nixon shock of 1971 made it a reality, the confidence that a currency enjoys has to be propagated by decree from the government of the day, as a legal tender and its value is based on the strength of the economy through the currency market system.
The Gold Standard Monetary System
The widely talked about gold standard, during the mid 20th century, was first use in the United Kingdom as a benchmark of value in 1816, soon to follow suit were Canada, Germany, Newfoundland, and the USA in the 1900. The main reason for this move was to keep inflation at bay and to have a competitive edge in the world market. However, the economic depression that ensued, after the crash of the stock market in 1929, made this move unpopular with the government at the time. And in 1971 US President Richards Nixon officially cancelled the convertibility of the US$ to the gold standard. What were the under pining factors that initiated such a move? The gold standard was to keep inflation in check but this model failed the test of the Vietnam War. The cost of the war was too overwhelming for the economy to bear. All the major economic indicators were pointing to economic instability. More than half the value of the currency was backed by gold but due to the economic imbalances in the system, it dropped to 22%. This decline was precipitated by foreign arbitrage, which is capitalizing on markets imbalance differences. This was the first time the US economy was in this economic dilemma, since the economic depression of 1929. Some countries were coming off the gold standard in order to increase their money supply. Such as German and Switzerland to name a few, furthermore, other countries started to demand gold as payment from the United States government, that move threaten to deplete its gold reserves. Congress recommended a devaluation of the currency in order to protect it from speculators. And finally, on August 15, 1971 President Dixon unilaterally, along with his advisors, came off the gold standard. This decision by the president officially ended the Bretton Woods Accord that was signed in 1944 by the allied nations and as a result, the International Monitory Fund (IMF) was established to implement and foster a stable currency system. In addition, the United State dollar officially became the world’s reserve currency from Great Brittan Pound Sterling whose country was ravaged by the war. The system required that each county should peg its currency to gold or the United States dollar. All in all, the decision Nixon had to make was not an easy one. On the contrary, though, it found favor with the people of America. Given the avalanche of economic problems, in my opinion, was a prudent one.
