Evolution of Money

3 Key excerpts on "Evolution of Money"

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  Central Banks at a Crossroads

  What Can We Learn from History?

  • Michael D. Bordo, Øyvind Eitrheim, Marc Flandreau, Jan F. Qvigstad(Authors)
  • 2016(Publication Date)
  • Cambridge University Press

    (Publisher)

  The remainder is organized as follows. Section 2 sketches a conceptual framework for approaching the question of the coEvolution of Money markets and monetary policy design. Section 3 constructs quantitative indicators to capture long-term trends and patterns, and presents three newly collected historical datasets. Section 4 concludes. 2 The CoEvolution of Money Markets and Monetary Policy: A Conceptual Framework Coevolution is defined as the influence of closely associated objects on each other in their evolution: changes in A will trigger changes in B, which in turn will trigger changes in A – and so on and so forth, in a continuous loop. The medium- to long-run Evolution of Money market structures and monetary policy design is a clear case of such reciprocal influence. In what follows, we focus on the channels through which causality works in both directions. First, we ask how the way money markets are structured may impact the design of monetary policymaking. Then, we ask how the way monetary policy is designed may impact the structure of money markets. Finally, we present our approach with respect to this question. The CoEvolution of Money Markets and Monetary Policy 147 2.1 From Money Markets to Central Banks A central bank is generally defined as a banking institution whose liabilities (banknotes and deposits) play the role of ultimate medium of exchange (high-powered money) in a given geographical area. This privileged situa- tion is granted to the central bank by its sitting at the center of the payments system. Such a privilege typically does not come without strings attached, as a central bank is often required to be the ultimate banker to the government. In view of this, a central bank’s final objectives may be manifold.

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  Money and its Origins

  • Shahzavar Karimzadi(Author)
  • 2012(Publication Date)
  • Routledge

    (Publisher)

  Attributes of money, therefore, neither create money nor define money. They can only display the degree of efficiency of a thing that is used as a medium of exchange. The forms of money that would be chosen as generally accepted forms of money would be the ones that possess the greatest number of such attributes in a given historical period. These attributes are not permanent. They are transitory in respect to economic, political and technological developments and changes. Some forms become obsolete and fall into disuse while newer forms keep emerging. The mainstream theory attaches much importance to these transitory attributes of money.

  In the ordinary usage, the term medium of exchange only covers those forms that are currently used as a medium of exchange. There is no way out of this impasse. At the other end of the scale we have all the inconsistencies of the conventional treatment of the origins of money. The upshot of these inconsistencies arises not so much from faulty deduction but from some implications of the theory. The second most important aspect of money after knowing what money is, is computing the quantity of money. Measuring the quantity of money in circulation at any given time in an economy has been one of the preoccupations of economists and scholars for a long time. In fact, the history of measuring money goes as far back as ancient times. All the attempts in measuring money have been on providing a satisfactory explanation for the actual amount of money in an economy at any given time. Chinese civilization over 2,000 years ago laid the foundations for this erudite preoccupation. Every emerging commercial society ever since one way or another has grappled with this theory and used it as a point of reference for some of their monetary disorders.

  The actual significance of this theory lies in its implicit detection of correlation between money and economic development. The theory acknowledges that greater sophistication of production, distribution, markets, financial institutions and instruments ask for additional money. The increased interest in measuring the monetary aggregate from the 1970s onwards was part of this ongoing quest. Indeed, there is nothing inherently wrong with any identity, including this identity. All identities are true by definition. In the same way, quantity theory of money as an identity is true by definition of the terms employed in its construction. For instance, for centuries real coins that had full intrinsic value were considered to be the actual money. Then it was representative coins and notes and later the token or symbolic coins and notes that substituted forms of money that had no intrinsic value. For quantity theory of money as an identity it makes no difference whether money is real, symbolic or recorded digits. It will always hold true by definition. Therefore, it is a barren instrument to work out the monetary aggregates.

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  EVOLUTION OF EVERYTHING EB

  • Matt Ridley(Author)
  • 2015(Publication Date)
  • Fourth Estate

    (Publisher)

  15

  The Evolution of Money

  And trickles of silver and gold, also copper and lead, would stream And pool in the earth’s hollows. When cooled, men saw the gleam Of their glinting colours in the soil, and drawn to what they’d found – The shiny smoothness of the nuggets – pried them from the ground, And saw these bore the shapes of the depressions where they lay. Then this drove home that they could shape the nuggets in this way – Melting them down and pouring them into any mould they made.

  Lucretius, De Rerum Natura , Book 5, lines 1255–61

  Money is an evolutionary phenomenon. It emerged gradually among traders, rather than being created by rulers – despite the heads of kings on the coins: those just illustrated the tendency of the powerful to insist on monopolies. And there is absolutely no reason why money must be a government monopoly. There’s a story that illustrates this, from the dawn of Britain’s Industrial Revolution. In the eighteenth century more and more poor people started moving to towns and working for wages rather than staying in their rural villages and being paid in kind by their semi-feudal employers. This presented employers with a new problem – a shortage of coins. There were gold guineas in circulation for the rich to use, but too few silver crowns or shillings, or copper pennies or halfpennies. Silver coins were worth more, in gold, in China than at home, so they tended to be melted down and shipped east, while the Royal Mint sniffily refused to mint more for most of the eighteenth century. Existing silver shillings were deteriorating in quality. As for the Bank of England, it would issue no paper notes smaller than £5. The entrepreneurs of Birmingham, unable to pay wages in silver, found too few copper pennies available and resorted to using counterfeits, which were abundantly if illegally supplied to them in the back streets.

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