Types of Money

Date: 2015-10-07; view: 448.

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Part_4_Lesson_4_Text_2 (Стр. 334 – 337)

MONEY AS A MEDIUM OF EXCHANGE

Money is a medium of exchange in economy. It is a means of payment for goods and services and in settlement of debts. Money is also a standard of value for measuring the relative economic worth of different goods and services. The price of the commodity is the number of units of money required to buy this commodity. The main functions of money are a medium of exchange and the measure of value. Without the use of money, trade would be reduced to barter, that is to direct exchange of one commodity for another. Barter trade was the means used by primitive peoples, and it is still practised in some parts of the world. In a barter economy, a person having something to trade must find another who wants it and has something acceptable to offer in exchange. In a money economy, the owner of a commodity may sell it for money and buy anything he wants for this money. So money may be regarded as a keystone of modern economic life.

The most important types of money are commodity money, credit money, and fiat money. The value of commodity money is about equal to the value of tl>e material contained in it. The principal materials used for this type of money have been gold, silver, and copper. Credit money are documents with promises by the issuer to pay an equivalent value in the standard monetary metal. Fiat money is paper money the value of which is fixed by government. Most minor coins in circulation are also a form of fiat money, because the value of the material of which they are made is usually less than their value as money.

Both the fiat and credit forms of money are generally made acceptable through a government decree that all creditors must take the money in settlement of debts. Fiat money in the form of banknotes is referred to as legal tender.

Banknotes are usually made from special high-quality paper, with watermarks, metallic strips, and other features against forgery. Highly sophisticated printing techniques are used, and banknote designs have elements that are hard to copy. Fronts and backs of notes are printed separately, and serial numbers are added later.