Wednesday, 30 December 2009

What is Money?

Historically, many items have been used as money. Specific types of shells served the purpose on South Pacific islands. Stones and metal also have been used as money at different times ini history. Even in the United States, paper and various types of metal have been used as money. At one point gold coins were the predominent from of money but today they are seldom used in trade.

You probably have some idea about what money is and is not. For example, we all agree that cash and coins are acceptable for paying debts and for buying goods, but consider other method regularly used to pay for goods and services. Most of us have checking accounts and have found that merchants accept checks. This suggest that the balances you hold in your checking accounts can be readily accessed and also used to pay for goods. Money, then is anything that is generally acceptable in payment of goods and services and for paying debts. For an item to be generally acceptable, the majority of the population must agree that the item has value and be willing to accept it in trade. Additionally, merchants must believe that the money represents a safe way to store wealth. Why will a jeweler agree to give you a diamond ring and exchange for a few small pieces of paper? It is because the population has agree that have value beyond their production cost. Why does a population agree that worthless paper currency has real value?

Back in history, people used ti carry gold or other valuable goods around with them to meet their transaction needs. Somewhere along the line, a bright banker suggested that his customers leave the gold with the bank for safe keeping. The bank issued transferable receipts for the gold. In other words, the banks would give the gold to anyone who presented the receipt to the bank. Because the bank's customer found it much more convenient to whenever used in trade, gold receipts became very popular. Everyone was willing to accept them because they knew they could be exchanged for gold at any time. Eventually, the government took over the business of printing the receipts and kept the gold that backed the receipts in for 5t Knox. Each paper bill stated on the front that it could be exchanged for gold at a Federal Reserve Bank. Mush later, the government dropped the gold standard, and gold receipts were replaced with Federal Reserve notes. The population continued to accept the notes as money because they trusted the government not to print too much. Currently, there is not nearly enough gold in Fort Knox to redeem all of the Federal Reserves notes in circulation. Paper currency continues to have value simply because the population has agreed that is does.

مراجع: د. أنس البكري و د. وليد صافي، النقود والبنوك بين النظرية والتطبيق،[د.م]، دار البداية ودار المستقبل، الطبعة الأولى، صفحة 213

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