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The Evolution of Money By Anand Shirur. 2 What does money signify ? Agenda The ladder of economic civilization The second evolutionary step Gold Standard.

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Presentation on theme: "The Evolution of Money By Anand Shirur. 2 What does money signify ? Agenda The ladder of economic civilization The second evolutionary step Gold Standard."— Presentation transcript:

1 The Evolution of Money By Anand Shirur

2 2 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

3 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”........

4 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

5 The Ladder of Economic Civilization Stages in development of money  Barter trade  Commodity money  Standardized Coinage  Representative Money  Fiat Money  Credit Money  Electronic Money

6 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” Limitations Coincidence of wants Perishability Inefficient

7 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

8 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

9 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

10 The Second Evolutionary Step Fiat Money Money, not backed by reserves Derives stand-alone value by government decree Money is a 'Forced / Legal Tender'

11 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

12 Brettons Wood – July 1944 Conference after 2 nd 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

13 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

14 The Fourth Evolutionary Step Electronic Money Internet fund transfers Mobile fund transfers

15 Thanks


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