Have you ever tried to trade your notes for lunch at school? Probably not. But imagine living in a time when that was normal, people exchanging things like rice for salt, or goats for clothes. That old system is called barter, and while it worked for a while, it had many problems.
For example, what if you had firewood and needed yams, but the person with yams didn’t need firewood? That’s where money came in.
Money is anything people agree to use when buying or selling things. It could be coins, paper notes, or even money in your bank app. As long as people trust and accept it, it works as money.
Money is defined as an asset that is generally accepted as a medium of exchange for goods and services or for settling debts
In Nigeria, the government makes certain types of money legal tender, which means everyone must accept it for payments. In Nigeria, that’s the Naira.
Table of Contents
Evolution And Development Of Money
The concept of money was developed to address the problems encountered in trade by barter, such as lack of double coincidence of wants. Over time, different cultures used various items, including cattle, cowrie shells, beads, salt, and tobacco.
Later, precious metals like gold and silver were adopted. These metals were weighed during transactions, which eventually led to the introduction of coins with fixed values.
The use of paper currency began when goldsmiths issued receipts to individuals depositing gold and silver. These receipts were gradually accepted as currency and became what we now know as banknotes, with the goldsmiths evolving into bankers.
Eventually, the public began accepting non-convertible paper currency not backed by physical commodities, purely based on trust and legal backing. Money has since evolved in various forms, each enhancing trade and economic activity.
Stages In The Evolution Of Money
- Widely demanded goods (e.g., cattle, salt)
- Precious metals (measured by weight)
- Metal coins with assigned values
- Receipts issued by goldsmiths (early banknotes)
- Banknotes redeemable in gold or silver
- Modern inconvertible paper currency
Functions of Money
Let’s look at what money actually does in your daily life and in the economy.
1. It Makes Buying and Selling Easier (Medium of Exchange)
Imagine trying to swap a bunch of bananas for a pair of trousers. What if the seller doesn’t like bananas? With money, you don’t need to worry. You just pay, and everyone is happy. It saves time and stress and lets us buy what we want when we want it.
2. It Helps You Pay Later (Standard for Deferred Payment)
Ever borrowed something and promised to pay later? That’s possible because money gives us a clear way to agree on how much is owed. Whether it’s a school loan, buying on credit, or rent payments, money makes future payments simple and understandable.
3. It Helps Us Set Prices (Unit of Account)
Money helps us put a number on things. Without it, how would we know if a loaf of bread is worth more than a bottle of water? Prices like ₦500 or ₦2000 give us a way to compare, calculate, and keep records easily.
4. You Can Save It for the Future (Store of Value)
Let’s say you earn ₦5,000 today. You don’t have to spend it all at once. You can save some and use it next week or next year. Money holds its value (as long as prices don’t rise too fast), which makes saving possible.
5. It Lets Us Compare Worth (Measure of Value)
If a textbook costs ₦3,000 and a T-shirt costs ₦5,000, it’s easy to see which one is more expensive. Money gives us a way to measure the value of things so we can make smart choices.
Advantages of Using Money
Money has made life much easier than the days of trade by barter. Here’s how:
1. You Can Pay Later with Confidence
Whether you’re buying school supplies now and paying at month-end, or saving up to buy something big later, money makes it easy to plan and pay over time.
2. It Makes Getting Loans Possible
Banks and lenders use money as the basis for giving loans. Without a reliable payment method, things like student loans, business funding, or buying a car in installments wouldn’t exist.
3. It Encourages Specialisation
You don’t have to grow your own food, sew your clothes, and build your house. With money, you can focus on one job—like teaching, plumbing, or writing—and use your earnings to buy everything else.
4. It Makes Shopping Simple
Whether it’s paying your school fees, buying snacks, or getting a new phone, money helps you get what you need quickly and easily. No need to carry around a goat or a basket of yams.
Qualities Or Characteristics Of Money
For anything to function effectively as money, it must possess the following key features:
1. General Acceptability
It must be widely accepted by everyone in a country or society as a medium of exchange. This acceptability shows that people trust its value.
2. Portability
It should be light and convenient to carry around. This ensures ease of use in daily transactions.
3. Relative Scarcity
It should not be overly abundant. If too much of it is in circulation, it may lose its value.
4. Homogeneity
Each unit of money must be identical in appearance, size, and quality to others. This uniformity helps ensure fair trade.
5. Durability
It must last over time. It should not be perishable or easily destroyed so it can be stored and used repeatedly.
6. Stability In Value
Its value should remain fairly constant to encourage saving, lending, and long-term business planning.
7. Divisibility
It must be capable of being broken down into smaller units (e.g., ₦100, ₦50, ₦20) to enable purchases of goods at different price levels.
8. Recognisability
It must be easy for people to identify genuine money. It should be hard to counterfeit or fake.
Forms Or Types Of Money
1. Legal Tender
This refers to money that must, by law, be accepted in payment of a debt. It is recognised officially and cannot legally be refused, e.g., the Naira in Nigeria.
2. Coins
Made from metal, coins carry an official stamp and are often used for smaller transactions. They are durable and easy to carry, e.g., 25k, 50k, ₦1.
3. Bank Notes
These are paper currencies issued by the central bank. They originated from goldsmith receipts and are now widely used, e.g., ₦5, ₦10, ₦20, ₦50, ₦100.
4. Partial Money
These are limited-use forms of payment not backed by law and accepted only in specific situations or places, e.g., petrol vouchers, tickets, cheques.
5. Commodity Money
This includes items that are valuable in themselves and can also be used for trade, e.g., gold, silver, and cattle. They have both use and exchange value.
6. Token Money
This has a face value that is higher than its actual material worth. For example, the value printed on a coin is greater than the metal used to produce it.
7. Deposit Money
This refers to money held in bank accounts. It can be transferred using cheques or electronic means. Though not physical cash, it is widely used for transactions.
8. Fiat Money
It is declared legal tender by the government but is not backed by physical reserves like gold. It works solely on trust in the issuing authority.
Similarities Between Money And Commodities Used In Barter Trade
- Both experience changes in value over time.
- Both are used to exchange goods and services.
- Each has a specific market where it is used or traded.
- People demand both for their usefulness.
- Their value is influenced by supply and demand.
- Both are treated as commodities in the economy.
Differences Between Money And Commodities Used In Barter Trade
- Money is generally accepted as a medium of exchange, while barter commodities are not universally accepted.
- It has no significant intrinsic value, but commodities used in barter have value in themselves.
- It is more durable and easier to store, whereas barter goods can be perishable or bulky.
- It is divisible and standardised, but commodities may be difficult to divide or measure precisely.
Read also: Is Money Really Important In Learning?
