The Development of Money

Money is defined as anything that is commonly acceptable as an instrument or medium of

exchange. As division of labour and specialization developed and trade expanded a common
medium of exchange was required that was acceptable to everyone and which would solve the
problems of barter. Early forms of money included shells, beads, precious metals and stones.

The Characteristics of Money

1. Acceptable money is universally accepted
2. Durable long lasting
3. Divisible Can be easily broken down into smaller units. E.g. $100 can be broken down into
$10 bills and so facilitating the purchase of small quantities
4. Homogeneous similar e.g. all $100 bills are the same in appearance
5. Convertible easily exchanged for goods and services
6. Scarce this ensures its value
7. Portable easy to carry

Functions of Money
1. It is a medium of exchange i.e. since money is acceptable by all, persons will not have
difficulties to trade
2. A measure of value the price of an item indicates its value
3. It is a store of wealth i.e. money can be easily stored/saved.
4. It is a standard for deferred payments. i.e. it can be used to repay debts over time.

Types of Money
1. Notes and Coins
2. Quasi Money/ substitute money examples are postal orders, soda machine tokens, cheques
and credit cards.
3. Near Money assets that can easily be turned into cash, e.g. certificate of deposits, bills of
exchange.
Cheques - Is an order to the bank to make payments to the payee stated on it.

Credit Cards/Debit Cards - This allows the card holder to make payments by simply presenting
the card to the seller. A credit card facility is actually a loan given to a customer and thus it is
repaid at an interest. A debit card is issued against a customers account balance and is therefore
not a loan.

Money Order - They can be used to make payments locally or overseas, as they are made out in
the currency in which they are to be paid. The payee will cash the money order at his bank.

Bank Draft - A bank draft is a cheque which guarantees payment to the receiver from the
issuing bank. Bank drafts can be made out to a payee in foreign currency and thus used for
making overseas payments. Bank drafts are obtained for a fee from a commercial bank.

Bill of Exchange - This is used to pay for goods bought overseas on credit. It is an order in
writing from an exporter to an importer requiring payments of a certain sum of money at a fixed
future date. The time period allowed is normally three months.

Electronic Transfer - This is a system used to transfer funds electronically rather than paper-
based payment methods. Examples include credit and debit card transactions, remittances
(through companies such as Western Union) and money transfers.

Tele-Banking - This system allows a banks customer to simply use the telephone to get his
banking services done rather than visiting the bank. Services include; checking account balances
and transaction history, opening a new account, transferring funds etc.

Internet Banking - This differs from tele-banking in that the internet is used to access the same
services. Customers can go on-line to view their balances and transaction history and transfer
funds etc.
Ecommerce - Electronic commerce more popularly called ecommerce is the buying and selling
of goods and service using the internet. It allows for a full range of trading activities over the
internet such as advertising, placing orders, delivery and making payments.