Download The Evolution of Money By Anand Shirur

The Evolution of Money
By Anand Shirur
Agenda
What does money signify ?
The ladder of economic civilization
The first evolutionary step
The second evolutionary step
Gold Standard & Brettons Woods
The third evolutionary step
The fourth evolutionary step
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What does Money Signify

Medium for exchange of Value

Count of ‘your’ value addition to society
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Success & Self Esteem
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It's the center around which world revolves
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“ Its all about money, honey”........
Why was Money Invented ?
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Specialization of Labour made economic
exchange a fundamental necessity
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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 money
 Barter trade
 Commodity money
 Standardized Coinage
 Representative Money
 Fiat Money
 Credit Money
 Electronic Money
Step 1 – Barter Trade
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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”
Limitations
 Coincidence of wants
 Perishability
 Inefficient
The First Evolutionary Step
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 Second Evolutionary Step
Representative Money

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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

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Money, not backed by reserves
Derives stand-alone value by government
decree
Money is a 'Forced / Legal Tender'
Gold Standard – 1901 to 1932
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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
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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
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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
The Fourth Evolutionary Step
Electronic Money
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Internet fund transfers
Mobile fund transfers
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