MONEY- The Secret Story.

 MONEY- The Secret Story. (Part 1)

The story of money is as older as civilization it self, No matter what corner of the world you are living, You need food, water, cloth, shelter and money to buy them.

We spend much of our life chasing money to make a living and accomplished our dream, but it is also an instrument of destruction & some might say an Evil.

So let's start the journey... . . . . . . .    ✈         

During the early part of civilization, 

Before the advent of money, the activity of exchange was carried out through barter system.

➞ In Barter System, people exchanged goods and services in their possession with goods and services available with others.

For example:- A farmer exchanged his food grains for a piece of meat.

This activity helped both the farmer and meat seller to satisfy their wants.

♦ At that time money was in the form of like:- wheat, rice, goat, jute, cotton, tobacco, fish, leather, iron, ......... in ancient Rome it was salt, it was whale teeth in Fiji, yack dunk in Tibet, shells in Africa and China....and so on..

♦ The barter system worked well so long as human wants were simple and limited in numbers. However in course of time human wants increased drastically and this resulted in a lot of difficulty for exchange Like:- 

• Problem of measurement of value:- how much wheat or sugar or salt or rice need to be offered in exchange of a meter of cloth.

• Problem of double coincidence of wants:- Suppose Mr. Golu has surplus wheat and want to exchange it for cloth. so he must find some person which has surplus cloth to offer while, at the same time needs for wheat offered by mr. golu. such coincidences were easy when human wants were simple and number of goods produced were limited but such coincidences of wants become difficult and time consuming.

• Problem of durability:- Goods are in form of  wheat, rice, meat,....etc., are generally perishable and would not last long and hence cannot be stored for future use......and so on.

So a more stable system were needed.

When human wanted to trade outside their tribe or village, they needed something that everyone could agree had value, something storable.

➞ So with progress of civilization, metal came into existence and Gold and Silver have been the predominate currencies for about 5000 years.

 Metal was used as money because it had these five characteristics:- 

• Scarce :- there is not enough metal so it is relatively scarce.

• Recognizable :- it can be easily recognized or identified.

• Divisible :- it can be cut into small pieces.

• Fungible:- you can substitute one piece for another of equal value.

• Portable :- you can carry it around without too much trouble.

♦ And also it was readily available, easy to work with and could be recycled.

♦ Using coins also meant that an authority now control the supply of currency.

👉 Previously coins didn't have the round edge, they were flat and as it passes from people to people → they cut little bit of it.

➞ It was into some were around 630BC when the first metal coin were minted :- some were around Lydia. Were each coin have the same size and same weight. This make them interchangeable called fungible.

♦ Since coins were given a designated value, it became easier to compare the cost of items people wanted.  

♦ As a country develops economically and socially, it begins to take on more and more economic burdens adding layers upon layers of public works and also it increase expenditures to fund a massive military. . . . . . . . . ................ and eventually Expenditure exploded.

• When a government's expenditures exceed its revenues (called "Deficit spending"), than the government steals the wealth of its people by mixing more of a common metal like:- copper, nickel, iron, aluminum etc. with the precious metal like:- gold or silver this is called "Debasement of currency".

➞ So royal mints were substituting cheaper metals for gold and silver. and as they debase their coinage, all the gold and silver coin started disappearing from circulation and become quite rare. 

"The Gresham's law:- were people tend to save the thing that is rare and they spend the thing that is common in the circulation first".

➞ The deficit spending to fund all of their public work and debasement of their currency supply cause them the loss of purchasing power of  expanded currency supply and if no one can trust the gold and the silver content of your coin, then how can you trade with others.

➞ In ancient China, they invented a coinage system where the coins had holes punched in them called "Wu Zhu".

➞ So if you need to measure at large denominations, you could just run a string through the center of the coins and a particular length of string hold a hundred or a thousand at once.

➞ But as economy evolved and transactions got bigger and merchants found themselves needing tens or thousands of coins to complete the transactions, and of course a thousands of these strings weight about approx. 5kg already. So it become a real pain for the merchants to transport them.

➞ So the government started saying " How about we pay you a piece of paper that have the amount of coins we owe you written on them and you can pick up your coins when ever you want your money".

Entry of paper currency. 

➞ Since the government bought lots of things from its people, these papers circulated everywhere.

➞ Soon merchants realized, they could just trade the slips of paper to other merchants for their goods and services and thus these merchants begins to use these Promissory notes or essentially called I.O.U as Money.  

➤ Similarly other parts of the globe, the international merchants of that time found another solution, they recognized that the one person's debt has value, it can be traded or transferred. Let's understand it:-

1st ⬇

2nd ⬇

So here the parties didn't go for the exchange of 100 gold coins, instead a piece of paper was transferred from Mr. A to Mr. B and From Mr. B to Mr. C. and every one agreed that the piece of paper (I.O.U) had value 100 Gold coins.
It is only because every one trusted the Merchant Mr. B as solvent middle man.

Literally they had created a new form of currency #Paper currency.

Money- the secret story (Part 2):- Click here....👇

How the U.S Dollar came to have a central role in the world economy?

Thank you.... Stay happy and safe....😊