types of money

Money evolved through the following stages.

1. Barter system This was the earliest form of exchange where commodities were exchanged directly for other commodities. e.g. millet, meat, cassava, beans, cows, salt etc.

2. Crude commodity money e.g. salt, corn, tea, tobacco etc. such commodities were used because of their real value. However, most of them were perishable.

3. Later beads, cowrie shells were used as money.

4. Precious metals e.g. silver, gold, iron, copper were used because they had more value, were scarce and therefore had some qualities of good money.

5. Paper money which is now operational in all countries (completely unbacked by gold).

6. Fiduciary issue This is money which is completely unbacked by gold.

7. Credit money Cheque deposit/demand deposit. Cheques are now used as the medium of exchange. Cheques are not legal tender but are acceptable in settlement of debts.

8. Fiat money This is money issued on the directive of the government irrespective of the level of economic activity.

9. Managed currencies Managed currency is that which is used only within a country.

   • Token or coins
   • Money which means near money.

Qualities of good money (characteristics of good money)

1. Acceptability It must be a legal tender, all people in the country must accept it in settlement of debts or other types of exchange.

2. Portability or transferability It should be easily carried from one place to another and it must not be heavy in relation to its value.

3. Divisibility Money should be easily divided into smaller unit e.g. 1 shilling, 5 shillings, 50 shillings and 100 shillings so as to facilitate smaller transactions.

4. Homogeneity One unit should be identical with other e.g. 100 shilling note should be similar as used in a country.

5. Scarcity Money should be relatively scarce so as to maintain its value and again it should not be too scarce.

6. Stability in value Money should be able to maintain its value from year to year. In reasonable period of time it should not delay or undergo any physical deterioration.

7. Uncounterfeitability That is money must be difficult to imitate or forge so that it can maintain its value.

8. Durability Money should be durable. It is to serve its function as a store of value. Money must not delay or undergo any physical deterioration so as to maintain its value.

9. Cognizability Money should be easy recognized throughout all countries. The 100 shilling note, 200, 500, 1000 etc. which should be the same throughout the all city.

10. Malleability Money coin should be hammered or beaten into any shape without losing its intrinsic value i.e. it should not crush or break and disintegrate.