What is money?

Summary

This video explains the concept of money, its evolution, and its functions in modern economies. It explores how trade transitioned from barter systems to the use of precious metals like gold and silver, which eventually led to the creation of banknotes. The role of the South African Reserve Bank in issuing money and the trust it holds in the value of currency are highlighted. Money serves three main functions: as a medium of exchange, a store of value, and a unit of account, which makes it an essential part of modern economies.

Takeaways

• 😀 Money is a commodity used for payment in exchange for goods and services, and in South Africa, it is typically referred to as rands and cents.
• 😀 Before money was in circulation, people engaged in barter trade, exchanging goods like maize for sheep, which was inefficient.
• 😀 Barter trade had limitations because the needs of the parties involved did not always align, leading to inefficiencies.
• 😀 Precious metal coins, such as gold and silver, replaced barter trade as a more efficient means of exchange.
• 😀 As coins were heavy to carry, people started depositing them with precious metal dealers in exchange for receipts, which eventually became tradable.
• 😀 Banknotes were developed from these tradable receipts, with the first ones issued by commercial banks that stored precious metals.
• 😀 In 1922, the right to issue banknotes was taken over by the South African Reserve Bank, the country's central bank.
• 😀 Since 1930, the value of South African banknotes is based on trust, where they are accepted for goods, services, or as deposits at commercial banks.
• 😀 Money serves three basic functions: as a means of exchange, a store of value, and a unit of account.
• 😀 The convenience of using various forms of money, such as banknotes, coins, bank deposits, and credit, makes trade easier and more efficient.
• 😀 Money allows for clear expression of the value of goods and services, enabling comparisons and determining what is expensive or cheap in the economy.

Q & A

What is money, and how is it used in South Africa?

Money is a commodity used for payment in exchange for goods and services. In South Africa, money is typically in the form of rands and cents, which are used to express prices.

What system did people use before money was introduced?

Before money, people relied on barter trade, exchanging goods directly for other goods, such as three bags of maize for one sheep. This system was slow and inefficient.

Why was barter trade inefficient?

Barter trade was inefficient because the needs of people did not always match up, such as when someone parting with a sheep might prefer chickens rather than maize in exchange.

How did precious metals replace barter trade?

Precious metals like gold and silver were minted into coins, which were used in trade. The value of these coins was based on the amount of metal they contained.

What happened to coins as a medium of exchange over time?

Coins became heavy to carry, leading people to deposit them with precious metal dealers in exchange for deposit receipts, which were later used as a form of currency in trade.

How did banknotes come into existence?

Banknotes were developed as a convenient alternative to coins and were first issued by commercial banks, which took over the function of storing precious metals. These banknotes were convertible into gold at the issuing bank.

When did the South African Reserve Bank take over the issuance of banknotes?

The South African Reserve Bank began issuing banknotes in 1922, taking over the role previously held by commercial banks.

What is the basis of the value of South African banknotes today?

Since 1930, the value of South African banknotes has been based on trust. People believe that the banknotes will be accepted in exchange for goods and services of similar value.

What are the three basic functions of money?

The three basic functions of money are: 1) a means of exchange, 2) a store of value, and 3) a unit of account.

How does money function as a means of exchange in the modern economy?

Money serves as a means of exchange by facilitating trade. In addition to banknotes and coins, forms of money like bank deposits, credit cards, and internet banking are used for trade.