UNDERSTANDING

MONEY

SOCIAL SCIENCE YEAR 8

1
UNDERSTANDING MONEY

Student’s Book
Year 8

Ministry of Education
Port Vila
Republic of Vanuatu
1998

1
Third Edition 1998
Revised by Pierre Dumoulin, following recommendations from the Social Science workshop held at Matevulu College in April
1995
First published in 1973 by the U.N.D.P. Curriculum Development Unit, as two booklets, Understanding Money 1 and
Understanding Money 2
Second Edition 1987
This 3rd (revised) edition has been prepared by the Ministry of Education under the auspices of the Primary and Secondary
Education Project with support from the World Bank (Credit 1964 - VAN).
© Ministry of Education
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or
by any means, without written permission from the publisher.

Graphics: Tasau Tasale

Kalvau Molisngi

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 Contents
Chapter 1 Bartering and Exchange ...................................................... 5
What is exchange? ................................................... 5
Bartering ................................................................... 6
Rate of exchange ...................................................... 8
Chapter 2 Money ............................................................................... 10
The first money ....................................................... 10
Early coins .............................................................. 12
Coins today ............................................................ 13
Paper money ............................................................ 17
Cheques .................................................................. 20
Bank cards .............................................................. 21
The three main uses of money ................................. 23
Chapter 3 Different Currencies .......................................................... 24
What is currency?..................................................... 24
Value of different currencies ................................... 24
Changes in the rate of exchange ............................. 25
Chapter 4 The Changing Value of Money ......................................... 28
Changes in prices .................................................. 28
The Consumer Price Index ..................................... 29
Inflation .................................................................. 31
Chapter 5 Money and You ........................................................ 34
Appendix A. Revision Test ..................................................................... 36
Appendix B. Glossary ............................................................................ 37

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 CHAPTER 1
BARTERING AND EXCHANGE

WHAT IS EXCHANGE?
In Unit 8.1.1, you saw that we all have “needs” and “wants”. If we cannot ourselves
produce the goods and services we want, we have to find some other way of getting
them. This is done by exchange.
Exchange means that we give something to another person and receive something
back in return. The following pictures show four different kinds of exchange:

A FISH MARKET B

Rensarie
Secondary
School

C D

ACTIVITY
Match each of the pictures A to D above with the correct label:
i) Exchanging work for goods
ii) Exchanging money for goods
iii) Exchanging goods for goods
iv) Exchanging money for services

5
BARTERING
In the olden days, people exchanged one kind of goods for another. This is known as
barter or bartering. A person might produce more of something than he needed. This
surplus was available to exchange for other kinds of goods.
In Papua New Guinea, for example, people living in the Amphlett Islands used to
make clay pots. They took them by canoe to the Trobriand Islands, where they
exchanged their pots for yams.

In Vanuatu, people living in the high inland areas of Ambae used to barter with the
inhabitants of the coastal areas. The hill people gave taro, red-coloured mats and
weapons. In exchange, the coastal people gave coconuts, yams, tusked pigs and
pandanus leaves. In Tanna, turtles were exchanged for yams and kava. When
European traders first visited our islands, they exchanged things such as tinned meat,
guns, cloth and axes for produce such as sandalwood and beche-de-mer.

Sometimes, the bartering was done to mark an important ceremony such as marriage.
In the Pacific, it has been the custom for the family of the man to give gifts of things
like pigs, yams and mats to the family of the woman as a “bride price”. In return, the
woman is “given” by her family to the man.
Sometimes, people carried out services for other people in exchange for receiving
goods. A man might make a canoe in exchange for receiving a present of food.
Bartering was the most important method of exchange or trade between the island
people of the Pacific before the coming of the Europeans. Even when the Europeans
first came, it remained in common use. Bartering helped people to improve their lives.

6
It gave them things they could not produce themselves. It also helped to develop ties
of friendship between different families and different groups of people. Sometimes the
ceremonies of exchange became more important than the goods being bartered!
But bartering is only possible if people trust each other. Hill people would not trade
their pigs for the fish of the coastal people if they were afraid of each other. If
European traders took sandalwood and gave very little in return, then the island
people would not trust them any more, and the trading might stop.
Another disadvantage of bartering was that it was often very difficult to agree on the
goods that should be exchanged. A person might think that his tusked pig was worth 6
baskets of yams. His trading partner might want to offer 50 coconuts. They might be
able to agree on the goods to be exchanged, but not on the amount or number of each
that should be traded.

I will exchange my
pig for 6 baskets No!
of yams! 4 baskets!

A third disadvantage of bartering was that certain of the surplus goods that people
produced might not store very well for use in the future. If a man could not barter all
his fish, he would not be able to keep them for a month and then exchange them later!
They would go rotten.
In most parts of the world, bartering is no longer the main system of exchange. People
earn money and then exchange this money for the goods and services they want. But
bartering is still carried out, for example in parts of Vanuatu and in some of the other
Pacific islands.

7
 ACTIVITIES
1. What is meant by “bartering”, and why did it take place?
2. Give two examples of bartering in the olden days in the Pacific.
3. Give an actual example of bartering, or exchange of gifts, that still goes
on today in Vanuatu.
4. State the disadvantages and advantages of bartering.
5 Find out the word for “bartering” or “exchange” in 5 ni-Vanuatu
languages.

RATE OF EXCHANGE
Jonas is a very good fisherman and has a surplus of 24 fish. Pioni has a surplus of 6
yams. They agree to barter their surplus goods with each other. How many fish should
Jonas give for each yam?
The number of fish exchanged for each yam is called the price. We can say that the
price of one yam is four fish!
Let us look at another example.
If there were 100 fish available to be exchanged, and the demand for fish was 100,
the supply is equal to the demand. But if people demand 150 fish and there are only
100 available, would the price of fish go up or down? If the supply of fish remained at
100, but the demand was only 50, would the price of fish go up or down?

8
 ACTIVITIES
1. a) If you have one chicken, how many yams would you want for it?
b) If you have one can of lemonade, how many packets of Twisties
would you want for it?
2. Answer the following questions:
a) Walter has a surplus of 15 Kg of fish. Jini has a surplus of 2
beautiful mats. They decide to exchange their surplus goods. What
is the price of 1 mat?
b) One year later, Jini is still the only person on the island who can
make good quality mats. She has one extra. But there are now
three more fishermen besides Walter. This week, each fisherman
has a surplus of 5 Kg of fish. All four fishermen want to have the
mat!
What is the price of one mat now?
Why has the price of one mat gone up?

You have just learnt something very important. The price of something depends largely
on how much of the article that is available (its supply) and on how many people want
it (its demand).

9
 CHAPTER 2
MONEY

THE FIRST MONEY

You have seen that there were certain difficulties with bartering:
• People could not always agree on the nature and quantity of goods to be
exchange
• Bartering would not work if people could not trust each other
• The goods exchanged were sometimes bulky and difficult to carry
• It was sometimes hard to store surplus goods for use in carrying out an
exchange in the future
Gradually, people found
that some kinds of goods Beni, look at these Jojo, if you make Soon he, found that many
your necklace with people wanted the shell
were better than others to lovely shells I found!
I’m going to make a 20 shells on it, I’ll necklaces that he made.
give you 20 fish for
use for exchanges. They necklace with them.
it!
were long-lasting and in Jojo! I’ll give you 2
lobsters for 1 of these
great demand. They were necklaces.
also scarce. These goods
became the first kinds of
money.
The pictures on the right
show an imaginary example
of what might have
happened in the Pacific
1 2
Islands. It wasn’t long before people Some people even made
used the necklaces as money. necklaces from dolphins’ teeth
You can see that money is and used them as a form of
money.
an article, or articles, which I will exchange 3 shell
necklaces for your pig! OK! I can
a community uses as a way use the
How many dolphins’ teeth do you
want for one of your bowls?
necklaces to get
to exchange goods and some fish!
services. It is a medium of
Ten, please
exchange.
In the Pacific, shells, shell
necklaces, stones and teeth
were used as the first kinds
of money. In the Middle
East, people used small
pieces of gold, silver and
3 4
other metals. In Mongolia,
they used tea!

10
Making shell money in the Solomon Islands Other kinds of early money in the Pacific

Cowrie shells
Shell money

Teeth
Fish hooks

Some of the first kinds of money are still in use in the South Pacific for special
ceremonies of exchange between families. Shell money is used in the Solomon Islands.
Whales’ teeth are used in Fiji. Mats are in common use all over Vanuatu.

For an article to be useful as money, it has to have certain qualities:

• It must be acceptable to the person you want to buy your goods from. It is no
good giving him cowrie shells if he doesn’t want them.
• It must be durable (long-lasting).
• It must be easily divisible, meaning that it can be divided up into smaller pieces.
Smaller pieces can be used to buy things which have a lower price.
• It must be easily carried from place to place.
• It must be scarce. If everyone has plenty of the article being used as money, then
no-one will want any more.

ACTIVITIES
1. Draw a picture of a shell necklace, and explain why this was such a
good form of early money.
2. Explain why the use of money has replaced bartering in so many parts
of the world.
3. For each of the following, explain why it was suitable or not suitable to
be used as money in traditional societies:
a) a basket of taro b) a bag of beautiful red feathers
c) a piece of cloth d) lumps of coral e) a cow

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EARLY COINS
The first country in which coins were made was Lydia over 600 years before the birth
of Christ. The coins were small pieces of metal, all about the same shape and size. The
King of Lydia, Gyges, had the coins cut from electrum, which was a metal made by
mixing gold and silver together. The coins were marked in a special way so that
people could recognise them and trust them. Often the sign showed the head of the
king, or the head of one of the gods that the people worshipped.

Places where early coins were made

Spain
Ca
Black Sea sp
ian
Se
a

Lydia Mediterranean Sea

Persian Empire
Africa
Greek world
Re

Arabia
dS

Other regions
500 km Persian Gulf
ea

1/22,000,000

The idea of using pieces of metal for money quickly spread

to the Persian Empire and the Greek world. Later, the Romans copied the
idea. In about 400 B.C. the Romans decided to make their
coins inside the temple of one of one of their goddesses,
Moneta. It is from the name of their goddess that we get the
word mint, a factory for making money.
The early coins were made out of gold, or silver, or electrum,
or bronze (a mixture or alloy of copper and tin). These metals First gold coin
were very valuable. As the metal workers became more skilled, their coins became
more beautiful. Sometimes, they added the date, the name of the king, and the name
of the country.
By the middle ages, coins were in use all over Europe,
as well as in the Middle East, China and India. “Pieces of
Eight” were silver coins minted in Spain. Spanish
explorers like Quiros, Torres and Mendana, who all
came to the Pacific, must have carried them in their
ships.

Coins of the Middle Ages

12
 Coin making in Europe
at about 1500 A.D.

The workman on the left is cutting rounds (called blanks) from a sheet of gold or silver.
The workman on the right is striking the money. He places the blank between two dies or
engraving stamps (one fixed to the block, the other a moveable one held in the left hand)
and uses a hammer to stamp on the coin the designs engraved on the dies.

The first coins in the South Pacific were brought by the European explorers.
Sometimes, the island people thought that the coins were a new kind of jewellery. For
trading, they preferred to use bartering or shell money.
It was only when the colonial governments were established in the Pacific that coins
began to be used as money. This was from about 1820 onwards.

COINS TODAY
Coins are now used in all countries of the world. Every coin has two sides, its “head”
and its “tail”, each showing a different picture.

The pictures on coins

The pictures on coins are often symbols of wealth. For example, the 20 cent Fiji coin
shows a whale’s tooth. Vanuatu’s 50 VT coin shows a yam.
Some coins have a picture of the country’s ruler or head of state. For example, the
head of Queen Elizabeth II appears on the “head” side of all coins from Britain,
Australia and New Zealand.
Other coins show a country’s national sign or symbol. The 20 cent New Zealand coin
has a picture of a kiwi. All Vanuatu’s coins have the nation’s coat of arms on their
“head” side.

13
 Then there are coins that show animal life or scenes that are found in the country.
The 1 peso Bolivian coin shows a mountain landscape. All Australian coins show
common Australian birds or animals on their “tail” side. The Central Pacific Franc
shows a bird. Vanuatu’s 10 VT and 20 VT coins have pictures of a coconut crab.
A photograph of different coins

ACTIVITIES
1. Why do you think that gold and silver were used to make the first
coins?
2. a) Make your own coin rubbings of the complete set of
coins found in Vanuatu. To make a coin rubbing, place a thin
sheet of paper or tracing paper over the coin and rub a soft
pencil across it. Hold the pencil almost horizontally.
b) Copy and complete the following table to show the
features of Vanuatu’s coins:
Value Diameter Picture shown Picture shown
(VT) (mm) on “head” on ‘tail’

10

20

50

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 3. Class coin display
If possible, the class can try to make a coin display. Each student
should look for coins from different countries or for old coins used in
Vanuatu. If you prefer, rubbings or drawings can be made for the
display. Once the display is set up, try to find:
• the oldest coin
• the newest coin
• the most unusual coin

Metal for coins

Many kinds of metal have been used for coins - electrum, gold, silver, copper, bronze
(an alloy of copper and tin), silver mixed with nickel, and an alloy of copper and
nickel.
The largest gold coin ever made had a diameter of 13.5 cm. It was a 200 Mohur
piece from India, made in the 17th century by the Emperor Shah Jahan.
Today, the best kinds of metal for use as coins are those which are hard and which do
not easily corrode.
Coins today are mostly made of bronze or cupro-nickel (copper mixed with nickel).
Brown-coloured coins are usually made out of bronze (copper mixed with tin), or
brass (copper mixed with zinc). Silver-coloured coins are usually made from
cupro-nickel.
Gold and silver are no longer used for coins that are in everyday use. But most
countries have a few special gold and silver coins of very high value that are issued to
mark special occasions.
These coins normally remain in the Central Bank of the country.
The picture on the right shows a gold coin worth 200 Australian
dollars. It was issued in 1982 to mark the Commonwealth
Games.
In Vanuatu, the 1, 2, 5 and 100 VT coins are made from a
mixture of nickel and brass. The 10, 20 and 50 VT coins are
made from cupro-nickel.

Making coins
Every nation has its own coins, but small nations do not have their own mints. Most
South Pacific nations have their coins minted in France, Britain or Australia.
Vanuatu’s coins are minted at the Royal Mint in Britain. This Mint manufactures the
coins for most countries in the Commonweath.
The manufacture of coins is a requires great precision. Every coin must be perfect.
There are three steps in the minting of coins:

15
 1. Making the design for the coin. An artist first draws the design. Machines and
skilled engravers then put this design on to a piece of steel. The piece of steel
containing the final design is called the die.

A skilled engraver
puts fine details
on the die

2. Making the coin “blanks” or disks. The metals needed for each coin are mixed
up and melted in a huge oven. When the liquid metal cools down, it is cut up into
pieces that are exactly the right shape and size.
3. Striking the coins. The blanks are fed into a machine that stamps the design of
the dies on to them.
There is about a year’s work between the time the decision is taken to strike a new
coin and the time that the coin goes into circulation.
The more valuable coins sometimes have their edges “milled” or
“ridged”. This was originally done to stop people from cheating and
removing part of the coin in the days when coins were made of silver
or gold.
When coins have been minted, they are carefully checked and stored
in a safe place.

ACTIVITIES
1. Which 5 Pacific countries have resources of metallic ores that are useful
for making money? Give the name of each country and the metallic ores
that are mined there. (See page 21 of Unit 8.2.1)
2. Write one sentence to define each of the following:
a) a mint b) a die c) cupro-nickel
3. Try to explain each of the following:
a) Why are gold and silver no longer used for making ordinary
coins?
b) Why are coins not minted in the South Pacific islands?
c) Why is a mint protected by guards?
d) Why do some coins have a milled edge?

16
PAPER MONEY
The first paper money appeared in China in about 1070 BC at the time of the Sung
dynasty. Chinese money was extremely heavy, and was to pay large amounts.
“Bundles” of 1,000 sapeks (the old Chinese currency) threaded onto a reed were
used, weighing about 3 kg each. Because of this, the habit of replacing them with a
system of letters of exchange was adopted; then the Chinese government took the
decision to issue paper money, the use of which became generalised in the 12th
century.
The paper is cut into rectangular pieces. It is made with as much ceremony
as gold or silver money. The different officials take care to add their own
signatures and stamps. Then the guard of the royal seals dips in scarlet dye
the seal that is entrusted to him and stamps the pieces of paper with it as the
final step in giving them an authentic character.
With this money the Great Khan1 makes all his payments, in such a way
that he is able to buy so many precious things that his treasure is endless.
And also, several times a year, his heralds go into the city, sounding their horns
and proclaiming that whoever has gold, silver, precious stones, pearls or furs
should take them to the zecca2 where they will be paid for them
well and generously. And whoever has need of gold or silver or pearls or
furs goes to the zecca, buys all he needs and pays with this paper …..
No-one dared, on pain of death, to refuse the notes in payment.
Marco Polo
The Book of Marvels 1298
1. Name given to the Emperor of China, at the time of Marco Polo
2. The zecca: a kind of “Central Bank” for the Emperor

• The system of letters of exchange developed in Europe in the 14th and 15th
centuries. (Letters of exchange were rather like cheques.)
• In Europe, the first paper money was issued in 1483 by the Spanish Government
during a time of war. The government did not have enough coins available to pay
all its soldiers. It gave them pieces of paper instead, saying that each note could
be exchanged later on for a certain number of coins.
• The first countries to issue national notes were Sweden in 1661, followed by
England in 1694. The notes were issued by the government and circulated in the
same way as coins.
• Another example of how paper money came to be used was in Eastern Canada
in 1685. At this time, the French army ran short of coins, and so cut up playing
cards to use as money.
People soon found that paper money was much more useful than coins. It could be
carried around more easily, and it was not so hard to make.

17
 But, because the early paper money was so easy to make, a big problem arose. Some
people started to cheat and print their own!
Countries therefore had to make sure that their paper money could not be copied or
forged. Very complicated and beautiful designs were drawn on the notes. Notes were
given a water mark - a special mark that can be seen only if the paper is held up to
the light. Also used are special inks (the US $) or a kind of paper which is impossible
to reproduce (the Australian $). Sometimes included is a magnetic thread carrying
secret information (the Moroccan dirhan).
The bank note is only a piece of paper which costs little more than 2 vatu to make.
How does it happen that a 1000 vatu note allows anyone to buy 1000 vatu’s worth of
goods?
Originally, any bank could make paper money which people could freely convert to
metal money. The value of these notes depended on the confidence that the clients had
in the solidity of the bank. Nowadays only the Central Bank (or Reserve Bank) of a
country has the power to issue bank notes: the inhabitants of the country put their
confidence in the country which guarantees the purchasing value of its money.
Vanuatu’s bank notes are printed in Britain. There are five kinds of notes, worth 100
VT, 200 VT, 500 VT, 1000 VT, and 5000 VT.
The front of all five bank notes is the same.

The front shows Vanuatu’s

coat of arms, and the
name of the Central Bank
in both English and
French. The value of the
note is shown. So is the
note’s serial number.

The back of the five bank notes is different.

The 100 VT note shows

cattle grazing in a
coconut plantation.

100 VT notes are no longer being made, as they have been replaced by a 100 VT
coin. They can, however, still be used to make payments.

18
 The 200 VT note shows the
statue of a ni-Vanuatu family
which stands at the entrance
to Parliament.

The 500 VT note shows some

ni-Vanuatu beating a slit gong
during a custom ceremony.

The 1000 VT note shows a

traditional scene, with an
outrigger canoe and
traditional weapons. There is
also a map of Vanuatu.

The 5000 VT note shows

cattle, the Pentecost jump,
and a cruise ship at Port
Vila wharf.

It is the job of the Central Bank of Vanuatu to issue the nation’s paper money to the
other Vanuatu banks. It carefully controls the number of notes that are printed each
year. Any dirty or torn notes are replaced with new ones.

19
 ACTIVITIES
1. Can you see any disadvantages of using paper money?
2. Why are bank notes so carefully designed and drawn?
3. Vanuatu’s bank notes:
a) What is the main colour of each of Vanuatu’s bank notes?
b) Draw and describe the back of one of Vanuatu’s bank notes.
4. Why does a government carefully control the number of bank-notes that
are printed?
5. Why can we say that the use of paper money depends on trust?

CHEQUES
If you pay for something with coins or bank notes, we say that you are paying in cash.
But there is another way of buying goods or services.
You can deposit (pay in) your money at the bank which will open a bank account for
you. You will then be able to pay for goods or services with a cheque. This is a form
on which you write the name of the person to whom you owe the money, the amount,
in figures and words, and the date; then you sign it. A cheque is a written order to your
bank, asking it to pay out a certain sum of money. The beneficiary of the cheque (the
person to whom you are paying the money) can then go and withdraw the sum in cash
at your bank, or give the cheque to his own bank which will pay it into his account.
The money will pass directly from your account to his.

In the example on the previous page, John Willie has used a cheque to pay his
daughter’s school fees for 1997. He asks the ANZ Bank in Vila to pay the Lycée
Antoine de Bougainville the sum of 10,000 VT.
When this cheque is taken to the ANZ Bank, the bank will take 10,000 VT out of
John Willie’s account and give it to the Lycée.

20
 For John Willie, using a cheque has two advantages. Firstly, a book of cheques is
much easier to carry around than a lot of coins or bank notes. Secondly, it is safer. If a
thief steals John’s cheque book, it is useless to him because the cheques are not
signed. John Willie quickly tells the ANZ Bank that he has lost his cheque book. He
asks the bank not to give cash for any of the stolen cheques if the thief forges his
signature. All cheques have a serial number.
A cheque book can only be used inside the country where the person has his bank
account. If he travels overseas, he must carry a special kind of cheque called a
traveller’s cheque. A traveller’s cheque can be taken to a bank in another country,
where it may be exchanged for the same value of money in the currency of that
country.

A traveller’s cheque

BANK CARDS
The bank card was invented in the U.S.A. after the Second World War. It use has
developed considerably with the advance of information technology.
It is a plastic rectangle, 8.5 cm by 5.5 cm.
It has on its front:
• the name of the bank or organization which has issued it
• an identification number of 16 figures
• the name of the holder
• the period of validity
• the signature of the card holder
• a magnetic strip giving the BIN number (a 4 digit
number identifying the user of the card), the expiry
date of the card and its type (Mastercard, Visacard
and so on)
• It sometimes also has a microchip embedded in it.

21
 The owner of the card chooses the items he wants to buy. Instead of paying in cash,
he gives his bank card to the storekeeper. The storekeeper passes the card through a
special machine which records the information from the card onto a voucher. At the
same time the information and the purchasing amount are sent electronically for
checking, to make sure that there is enough money in the owner’s bank account to
make the payment. The bank card is returned to its owner. This process takes a very
short time. Then the storekeeper sends the voucher to the card owner’s bank, which
credits the storekeeper’s account with the amount of the payment.
Bank cards have many advantages. There is no longer any need to carry cash or a
cheque book. Certain cards are recognized throughout the world: there is no need to
carry foreign currencies or traveller’s cheques with you. You can also withdraw cash
anywhere in the world, at a bank counter or through an automatic distributor. If the
card is lost or stolen, you must alert the bank at once to avoid anyone else using it by
copying your signature; in countries which use an
electronic signature
(a BIN number of 4 figures known only to the
holder) the security is very great.
There are also certain special cards which can only
be used for a particular kind of expenditure,
telephone cards for example.

ACTIVITIES
1. Why do many people in South Pacific towns prefer to use cheques
rather than cash?
2. Summary of the history of money
Here is a list of some important events in the history of money. They
have not been written in the order in which they happened:
A Coins began to be used for money in the South Pacific.
B The first paper money was used.
C The first coins reached the Pacific.
D Bank cards were invented.
E The first paper money was used in Europe.
F The first coins were made.
Your task is to mark these 6 events in the correct place on the time-line
shown below. First make a large copy of the time-line in your exercise
book:

2000 1000 B.C. 0 1000 2000 A.D.

22
THE THREE MAIN USES OF MONEY
1. As a medium of exchange
As you have seen, money is used as a way of exchange. We work to earn money, and
we exchange this money for the goods and services we need and want.
For example, a fisherman may want to buy a new outboard motor. He sells his fish to
the people who want them. With the money he receives, he buys the outboard motor
that he wants. He has used money as a medium of exchange. He has exchanged his
fish for money, and then exchanged his money for the outboard motor.

2. As a measure of value
Money tells us the value or price of different goods and services. For example, a co-
operative store may sell one shirt for 500 VT and another shirt for 1500 VT. We can
say that the shirt at the higher price is the most valuable. It is probably a better shirt.
The price helps us to make a choice about which one to buy with the money we have.

3. As a store of wealth
Money can be stored or saved for a long time. It can be used to buy goods and
services in the future. You can save money in a bank and take it out 10 years later to
buy something that you want. But for this to work, the money must maintain a stable
value.

ACTIVITY
Draw pictures of your own to show how your family uses money
a) as a medium of exchange
b) as a measurement of value
c) as a store of wealth.

23
 CHAPTER 3
DIFFERENT CURRENCIES

WHAT IS CURRENCY?
Our currency is the money that is carried around in our pockets, for everyday use.
Coins and notes get passed from people to shops and banks, and the same coins and
notes are then passed to other people. We can say that currency is the money in
circulation in a country.
Each country gives its currency a name. In Vanuatu our currency is the vatu. In the
U.S.A., it is the dollar. In Japan, it is the yen. The same name can be used for
currencies in different countries (see the table of exchange rates, below).
One currency can be exchanged for another. The amount of another currency that one
currency will buy is called the rate of exchange. This is the purchase price of one
currency in another currency.

VALUE OF DIFFERENT CURRENCIES

Here is a table showing some of the currencies that are important for people in
Vanuatu. In the table, you can find the names of the countries and their currencies. You
can also see the symbol for each currency that is used. It is called the “swift currency
symbol”, and consists of three code letters. These code letters are easily handled by
computers around the world. In the right-hand column, you can see how many units of
each foreign currency you could buy with 100 VT.

24
 Rates of exchange on 17th February 1998
Country Name of main International Rate of exchange
unit of currency symbol

U.S.A Dollar $ USD 100 VT = $ 0.82

Australia Dollar $ AUD 100 VT = $ 1.24

Britain Pound £ GBP 100 VT = £ 0.50

France Franc F FRF 100 VT = F 5.02

New Caledonia Central Pacific XPF 100 VT = 91.44

Fr. Polynesia Franc

Fiji Dollar $ FJD 100 VT = $ 1.60

New Zealand Dollar $ NZD 100 VT = $ 1.43

Singapore Dollar $ SGD 100 VT = $ 1.40

Hong Kong Dollar $ HKD 100 VT = £ 6.39

Japan Yen Y JPY 100 VT = Y 103.97

Solomon Is. Dollar £ SBD 100 VT = £ 3.88

P. N.G. Kina K PGK 100 VT = K 1.52

Germany Deutschmark DM DEM 100 VT = D 1.50

Switzerland Franc F CHF 100 VT = F 1.20

Canada Dollar $ CAD 100 VT = $ 1.19

Netherlands Guilder G NLG 100 VT = G 1.70

CHANGES IN THE RATE OF EXCHANGE

The rate of exchange between different currencies does not stay the same. It changes
from day to day.
In 1995, for example, you could buy an average of only 43.39 French fancs with
1,000 VT. In 1997 you could buy 50.50 francs with 1,000 VT. How many would you
have got on 17th February 1998?
An Australian tourist arriving in Vanuatu in 1995 would have had to pay A$12.30 to
get 1,000 VT. But a year later, in 1996, he would have had to pay only A$11.32.

25
 Please may I have 1,000 VT OK,
give me $12.40
National Bank of Vanuatu
P.O. Box 249
Port Vila

ACTIVITIES
1. Give the international symbol for the currencies that are used in each
of countries numbered 1 to 12 in the map below:

26
 2. In 1998, the following articles were on sale in a store in Port Vila:

(glasses 9,750 VT)

(watch 246,700 VT)

(camera 33,500 VT)

a) A New Zealand tourist asks you how much these things

would cost in his currency. How much would you say?
b) How much would the same articles cost in Japanese yen?
3. A French businessman comes to Vanuatu. He has 5,400 French francs in
traveller’s cheques. How many vatu would this be?
4. Which of the following is worth the most in Vanuatu?
a) 200 GBP
b) 350 USD
c) 4000 XPF
c) 40,000 JPY
5. Do you think the change in the rate of exchange of the Australian dollar
between 1986 and 1998 was attractive for tourists? Calculate the price
of a souvenir t-shirt (700 VT) in AUD in 1987 and in 1998.

27
 CHAPTER 4
THE CHANGING VALUE OF
MONEY

CHANGES IN PRICES
The value of money does not stay the same from year to year.
We can easily see this if we take the price of household articles like sugar, rice, cloth
and matches. In 1977, you could buy a 210 g. loaf of French bread for 15 VT in
stores in Port Vila. In February 1998, the same-sized loaf costs 45 VT. The bread has
stayed the same, but its price has tripled. You must use more vatu now than you did
20 years ago to buy the same thing. Your money is worth less!
The following table shows how the average price of some products available in Port
Vila changed between 1975 and 1998:

A B C D E F
Product Price in Price in Price in % change, % change,
Sept. ’75 Sept. ’85 Feb. ’98 1985 - 1998 1975 - 1998
(VT) (VT) (VT)

5 kg bag of rice 210 317 480 + 51 % + 129%

340 g tin of
corned beef
(Ox and Palm) 61 144 260 + 80% + 326%

50 g tin of
instant coffee
(Nescafe) 54 205 270 + 32% + 400%

1 kg packet of
sugar (CSR) 69 63 120 + 90% + 74%

½ lb (225 g)
packet of fresh
butter 37 85 140 + 65% + 278%

1 litre of petrol 17 69 97 + 41% + 471%

Calculation of the change 1998 price - 1985 price x 100

1985 price

28
THE CONSUMER PRICE INDEX
The governments of all countries are very interested in finding out the changing value of
money. A government spends a lot of money itself in paying for such things as new
roads, schools, hospitals, vehicles and paper. But if the value of money is falling, then
more money will be needed each year to buy all the things that the government needs.
For this reason, most governments try to measure the changes in prices that are taking
place. They measure the changes by calculating the consumer price index.
The consumer price index is the cost of a selected group of goods and services for an
average family expressed in relationship to a base period.
To calculate the Consumer Price Index, a group of households, carefully chosen to
represent the average of the country, is first asked by the staff of the Government
Statistics Office how much they have spent in a quarter (a period of three months) on
such things as food, housing, clothing and other services. A study is made of 7 groups
of main expenses (see the table below). The Statistics Office then calculates from this
information the Consumer Price Index, then the proportion of the household’s income
that is spent on different goods and services.

Transport (14%)
Health and
recreation (12%)
Drinks and tobacco (10 %)

Household goods
(9%)

Rent, electricity,
water and fuel
Clothing (6%) (18%)

Food (31%)
How an average urban household spends its money

The quarter when the Consumer Price Index starts is known as the base. The base
quarter is always called 100%, or 100 units. At present the calculations are made
starting from the first quarter of 1990.

29
 The next quarter, the prices of all the goods and services paid for by the household are
measured again. The new prices are compared with those in the base quarter. If the
Consumer Price Index reaches 105, we know that prices have gone up by 5% in
relation to the base.
In Vanuatu, we calculate Consumer Price Indices for the two urban areas, Port Vila
and Luganville. Several CPIs may be calculated: for each town, for ni-Vanuatu
households, for expatriate households, and so on.
The graphs below show changes in the CPIs over several years:

120

110

100

Consumer Price Indices for Vanuatu from January 1990 to September 1997

30
INFLATION
When the prices of goods and services keep on rising, we call this inflation. It is a
phenomenon which exists in all countries.

The mechanism of inflation

The prices of goods and services rise. To be able to continue living normally, people
who are employed insist on a rise in wages.
But if people’s wages go up, their employers must pay out more money. How can
they get more money? Companies that manufacture goods simply put up the prices of
their products, in order to get more income to pay the wages of their employees. So
the price of tinned food, furniture, clothing and other goods rises again. It is the same
with employers who provide services.
So that these wages and goods can be paid for, more money needs to be made: the
number of coins and notes in circulation rises. As the general wealth of the country has
not changed, each note (or coin) represents a weaker purchasing value.
If each note or coin loses value, more money will be needed to buy an article, its price
rises ..... and the process starts again.

Prices go up

The value of money

goes down Wages go up
The vicious circle of inflation

The amount of money in

circulation rises

Inflation is a serious problem in the world today. In all countries, people are
finding that their money buys less and less each year. All the same, this
phenomenon varies enormously from one country to another.
Now look at the changes in price indices in Vanuatu and the Solomon Islands, shown
in the graph on page 32. What do you think about inflation in each of these two
countries?

31
 210
200
Consumer Price Indices 190
for Vanuatu and the 180
Solomon Islands from 170
January 1990 to
160
September 1997
150
140
130
120
110
100
Vanuatu
Solomon Islands

It is the people in towns who are most seriously affected by inflation. They cannot
grow their own food, and they must pay for housing, water and electricity. If the price
of food goes up each year, but a household’s income stays the same, then people may
not have enough to eat. Sometimes they will eat cheaper food, which is not good for
their health. Inflation spoils the budgets that people try to make.
Thus you can see that inflation is like a spiral. Prices go up, wages go up, prices go
up again, and so on. At each turn, the movement is accelerated, prices rise more and
more quickly.

ACTIVITIES
1. Study the table of prices on page 25. Then answer questions a) to d):
a) Find out the present-day prices of all the products.
b) Ask some older people if they can remember how much the
same articles cost 30 or 40 years ago. Remember that in the olden
days, people used “pounds” and “shillings”, and not vatu. Two
shillings was about the same as 20 VT.
c) Now draw line graphs to show the changes in the prices of:
• corned beef
• sugar
• rice
• petrol
d) Of all the products shown in the table, which one showed the
greatest price increase between 1975 and 1985?

32
2. Consumer Price Indexes for urban areas in Vanuatu
Questions a) to d) refer to the graph on page 31
a) What was the Consumer Price Index in Vanuatu at the end
of 1994?
b) What was the Consumer Price Index in the Solomon Islands
for the same date?
c) In which year was there the greatest increase in the
Consumer Price Indices?
d) Does the Consumer Price Index vary in a regular way? In
which period was inflation the weakest?
3. What is the difference between inflation and the Consumer Price Index?
4. Why is inflation a greater problem for people living in towns than for
those living in rural areas?
5. How do wages and salaries increase in Port Vila? Familiarise yourself
with the laws and regulations on wages and salaries. Do wage
increases follow the same rhythm as inflation? Give a concrete example
to justify your answer.

33
 CHAPTER 5
MONEY AND YOU
Money is very useful to us because it helps trading and production.
But money isn’t everything. There are many good things in life that are free. Such
things are air, kindness, happiness, beauty in the natural environment, and many leisure
activities. We must not think that getting a lot of money will always make us happy.
Here are some pictures to set you thinking about working for money.

A B

Some people do not work hard at their
job, but they still receive a regular wage
or salary. This person hasn’t produced
any goods or services. His laziness will
put up prices. Can you explain why?
Some people are not able to do any work.
The government or organisations like the
Red Cross help them. Who produces the
goods that they receive?

C D

Some people work very hard and earn a lot
of money. They buy expensive houses
and have cars, videos and swimming pools.
Other people in the same country are poor.
Is this fair? How does the Vanuatu
Government try to share out wealth?
Some people, like these Sisters, work
hard but receive very little money. Why do
they do this? How does it help the
community?

34
Some people gamble. They play cards for
money. If a person wins, he gains a lot of
money. Where does this money come
from? Who works to provide the money?
Who may suffer because of gambling?
Mothers of young children sometines
take up paid employment. Why? How
does it help the children? What things
do young children need that you
cannot buy?

ACTIVITIES
1. The class can divide into small groups. Each group should prepare
answers to the questions given under pictures A to F above.
2. Hold a class discussion or debate. What is your opinion about each of
the following?
a) The love of money is the root of all evil.
b) Wealth should be shared out equally among all people.
c) Everyone should be paid the same, no matter how hard they
work.
d) Gambling is wrong and should be banned.
e) Mothers of young children should not take up paid employment.

35
APPENDIX A REVISION TEST Time: 40 min.
1. Match each of the countries in List I with the correct item from List II. Put the
code letter of the correct answer in the box:
List I List II
a) Canada A. Florin
b) French Polynesia B. Kina
C. Franc
c) Germany D. Dollar
d) Japan E. Pound
F. Pacific Franc
G. Yen
H. Peso (Marks) (4)

2. Give one word for each of the following:

a) exchanging goods for goods
b) the quantity of an article that is available
c) an alloy of copper and tin
d) a written order to a bank to pay out a sum of money
e) the coins and notes in circulation in a country
f) a factory where coins are made
g) the design of a note visible only when held against the light (7)
State two disadvantages of bartering. (2)
4. Describe three qualities of good money. (3)
5. State three ways in which money is used. (3)
6. Explain what “inflation” is, and say why it occurs. (3)
7. Complete the missing words in these sentences:
a) The first coins were made in ......................... at about ............ B.C.
b) “Pieces of Eight” were silver coins made in ............
c) A government can check on the cost of living by calculating a
.................................. (4)
8. What is the approximate rate of exchange between the vatu and the Australian
dollar? (1)
9. Draw and describe Vanuatu’s 20 VT coin. (3)
( /30)

36
APPENDIX B GLOSSARY
(Note: the meanings given below are for the words as they are used in this booklet.
You may also find other meanings in your dictionary)
alloy Mixture of two or more metals (for example, bronze, a mixture
of copper and tin)
bank account Sum of money held for you by a bank; the bank lets you know
each month how much is received and spent
bank note Piece of paper money issued by a bank
barter or bartering Exchanging one kind of goods for another kind of goods
base (of the C.P.I.) The figure 100 which represents the starting point for the
calculation of an index; represents the price index of the first
quarter of 1990
cash Money in the form of coins or bank notes
central bank bank belonging generally to the nation; it alone has the right to
issue money (have it made).
cheque Written order to a bank asking it to pay out a certain sum of
money
circulation Movement around in a circle, back to the starting point
coat of arms Special design that is the “badge” of a nation or a wealthy
family (for example, the back of Vanuatu coins)
Commonwealth Group of countries which were formerly colonies of the United
Kingdom, but which are now independent
consumer price index Way of measuring the variations in prices of products (C.P.I.)
currently being used by the population
corrode Wear away
currency Money in use by people in a country
demand Total quantity of a product or service that people want to buy
(e.g. the demand for Vanuatu copra = the quantity of copra that
the clients want to buy: it is often different from the supply)
die Carved metal stamp used for pressing the design on to a coin
divisible Able to be divided up into smaller units
durable Long-lasting
engraver Person who carves a design on to a piece of metal, ready for
printing
exchange Give something to another person and receive something back
in return

37
exchange rate Sum of money exchanged for a unit of another currency: the
price of one currency expressed in another currency
forge Make a copy of a document or a coin, in order to use it to
cheat people
inflation Continual rise in prices; it shows a lowering in value of the
money of a country
medium Way
Middle Ages Period of time between A.D. 500 and A.D. 1500
mint Place where coins and bank notes are made
price Value with which a product or service is exchanged
prosperity Period of success, of abundance
rate of exchange Amount of goods exchanged for one other article; amount of
money exchanged for one unit of another currency; also known
as “price”
scarce Not common; present in small amounts
serial number Number that belongs to a set of numbers that follow each other
spiral Circular path that goes round and round and upwards
strike Refusal to work
supply Total quantity of a product or service on sale (e.g. the supply of
Vanuatu copra = the quantity of copra that Vanuatu wants to
sell)
surplus Extra amount left over after needs have been met
traveller’s cheque Cheque bought in one currency (e.g. in vatu) the amount of
which is expressed in another currency (e.g. in Australian
dollars)
watermark Special design on a bank note that can only be seen when the
note is held up to the light
wealth Great amount of money or property

38