Money (currency)

Money is all common medium of exchange and generally accepted by a society that isused for payment of goods (goods), services, and any liabilities (debts).
The money enables the exchange of goods and services in an economy in a more simple barter. Therefore, for property can be described as money must meet thefollowing three criteria and which are the three main functions performed by money in amodern economic system:

1. Medium of exchange: to avoid the inefficiencies of a barter system. When a well isrequired for the sole purpose of using it to be exchanged for other things, has thisproperty. For example, few people keep bills for collection. Instead, most people keep them for the possibility to exchange whenever they want for other goods. In addition, the money should be a good light and easy to store and transport.

2. Unit of account: When the value of an asset is often used to measure and compare the value of other property or its value is used to refer debts, says the well has thisproperty. For example, if members of a culture are inclined to measure the value of things in reference to goats, the goats would be the primary unit of account. A horse could cost 10 goats and a cabin about 45 goats. The unit of account means the unit of measurement used in an economy to fix prices.

3. Conservation value: When a property is acquired in order to preserve the commercial value for future trade, then is said to be used as a store of value. In the above example, a goat would have a problem when serving as money, since it is a perishable commodity, eventually dies. Other materials, like gold and silver properties preserved despite the passage of time. It is a way of accumulation or hoarding. Money, as representative of wealth, has the power to buy any goods can be stored in any quantity. In other words, the function of hoarding money can only be

4. Performed infull value: coins and gold bullion, precious stones, gold, etc... The choice as a way of accumulation must be always something that can be stored for long periods without deterioration. Money is a store of value but not the only, any asset that maintains its purchasing power over time serve as a store of value.

In addition to the above, the money must be recognized by the society that uses it, allowing their identification and assessment of a clear way.
The money, as we know it today (currency without intrinsic value) must be endorsed or certified by the issuing institution. Currently there are governments, through laws, which determine what type of legal tender money, but are other entities such as central banks(Central Bank) and Mint (Mint), which are responsible First, to regulate and control monetary policy in an economy, and second, to create notes and coins on demand and the need for physical money.
Summarizing, we can say that money is an asset that serves as a platform neutral intermediate to exchange goods and services in society, thus avoiding inaccuracies in a direct exchange of market goods and services (barter).

HISTORY OF MONEY

Formerly, the common form of trade was barter system, exchanging goods and services directly and others. This system is inefficient and can be seen with the following example:

A farmer is engaged in raising goats and need wheat to make bread. The person who grows wheat needs no goat, and therefore the direct exchange is not possible. A blacksmith does want a goat to eat, but the farmer does not require the tools made ​​by the blacksmith, but the grower does require tools for their work.
From the most primitive societies, men have needed to exchange the property obtained as a result of their efforts to others. Thus, he had collected the fruits of the earth at a given moment might want to change some of them for example skins. Thus arose the exchange. The problem is that, at that time, the exchanges depended on the needs of each individual at all times, be a slow process and difficult to adapt to the immediate urgent needs of each individual.

In the example given, it is possible for the hunter who had not wanted the skins off of the land but wooden sticks. The task of barter could be difficult, since in the first instance, require fruit picker to find someone willing to change the fruit and wood, then go to change it for the skins. At some point could be that the fruit picker fruit given to the one with wooden batons, and ask for a score equivalent to the value of fruit, and then could have gone along with this note to the owner of the skins, asking him changed This document (which had a value in wood) for furs, then later could claim the wood to the issuer of the note (the owner of the timber). And probably, in this hypothetical situation, the holder of the skins may have received the note and not go then exchange it for sticks of wood, but use it for her to get some other good or service elsewhere. Obviously, at some point the note could have returned to their original issuer in order to change finally the wooden sticks. But it could have happened, that some very special notes have never returned to their original sender, and remain circulating for a very long time in the circuit until his eventual trade to its eventual destruction or impairment, thus fulfilling a monetary function, this may well have passed through metal delivery notes issued by very important people like kings and pharaohs.

Finally, in every community recently appeared certain goods that are more easily exchanged than others, so that individuals with the demand, not its utility but for its special ability to move the market, to serve as currency. So ultimately, its liquidity. Aclear example would be cigarettes in the prison environment, which would be used even by non-smokers to switch to other goods, or chocolates in Europe after World War II, a product that by its acute shortage served informally to children and adultscurrency exchange for other goods. These examples illustrate a widespread or general acceptance need unites all, and allows the exchange of goods and services. In advanced civilizations, that kind of money is widely accepted that facilitates business transactions in an easy and simple, thus favoring the expansion of trade.
Of course, money that was used in the beginning, in ancient times was not as we know it today. Different civilizations have adopted various goods to meet with them the roleof money, food, shells, metal, feathers, gemstones, etc.

Over time, gold and silver were widely used as money because its value is accepted worldwide, and also because of the ease of transportation, conservation benefits, and so on. To guarantee or certify that a piece of metal or coin contained a certain amount of gold or silver coinage began, as a guarantee or certification by recognized and respected organizations (kingdoms, governments, banks), which endorsed the weight and quality of the metals contained.
The earliest known coins are minted in Lydia, now Turkey in the seventh century C.

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Coins third of Stater, struck in the early sixth century C.
According to Herodotus, the people I deal was the first to introduce the use of gold and silver coins, and also the first to establish local stores permanent change. Believed to be the first to mint coins printed during the reign of Gyges, in the second half of seventh century C. other numismatic coinage back to Ardis II. The first coin was made ​​ofelectro (alloy of gold and silver), with a weight of 4.76 grams in order to pay troops on a regular basis. The reason the pattern was the head of a lion, the symbol of royalty. Lydian standard were 14.1 grams of electrum was a soldier's pay for one month of service, this measure was called Stater.

It required an evolution in which States issued notes and coins, which entitled the bearer to exchange them for gold or silver reserves of the country. The evolution of the back of paper money is as follows:

- In the eighteenth and nineteenth centuries, many countries had a pattern of two metals, gold and silver based.

- Between 1870 and the First World War mainly adopted the gold standard, so that any citizen could transform paper money in an amount of gold equivalent.

-In the period between world wars tried to return to the gold standard, although the economic situation and the crisis or to crack the 29 ended with the convertibility of banknotes into gold for individuals.

-At the end of World War II, the Allies established a new financial system at Bretton Woods, which established that all currencies would be convertible into U.S. dollars and only the U.S. dollar would be convertible into gold bullion at 35 dollars per ounce for foreign governments.

-In 1971, expansionary fiscal policies of the U.S., driven mainly by military spending inVietnam, led to the abundance of dollars, raising doubts about its convertibility into gold. This led to European central banks try to convert their dollar reserves into gold, creating an untenable situation for the U.S. In response, in December 1971, U.S. President Richard Nixon unilaterally suspended the gold convertibility of the dollar for the public and devalued the dollar by 10%. In 1973, the dollar was again devalued another 10%, until finally, it ends with the dollar's convertibility into gold for the governments and foreign central banks.

-From 1973 until today, the money we currently use has a value that is in the subjective belief that it will be accepted by the other inhabitants of a country or economic zone as a means of exchange. The monetary authorities and central banks do not intend to defend any particular level of exchange rate, but intervening in currency markets to smooth out short-term speculative swings, with the objective to keep short-term price stability, and avoid situations like hyperinflation, which makes the value of that money is destroyed the disappearance of confidence in it, or deflation.

MONEY AND LIQUIDITY OF ASSETS

As seen in the definition of money, it can be any asset (assets), contract, certificate or anything of value to the parties involved in a transaction. In fact, anyone can create their own money, and is currently, for example, retailers with the issuance of vouchers, but this kind of money is a downside, which is only accepted by the store that issued them, so their liquidity is very limited.
Currently the only type of money that is legally considered as such, is the money issued by central banks (currency), also known as legal money, and always has to be accepted as payment. It is considered that the legal currency is the most liquid asset which can convert other assets (goods, services, debts or obligations) and vice versa.

There are different types of assets that can be classified according to their degree of liquidity on the money. For example, the amounts of bank accounts (deposits) are considered as bank money that can be converted into legal money in a ratio of 1:1, immediately, that is, when we make a cash deposit a checking account, it becomes bank money, which comes from doing a simple accounting entry in the liability (or debt) from the bank, indicating that the bank has that amount of money to the depositor, and besides, there is a commitment (contract) by the bank to make the bank money (debt) in lawful money (cash) immediately if the customer so requests. From a customer standpoint, what you have is an asset in the form of debt (bank money) with a high degree of liquidity as there is a commitment by the bank that you can always make money legally. With the legal money deposited by the customer, the bank does its business, paying part by loans to other customers, buying bonds or shares, etc. but keep quiet elsewhere (legal reserve and self) to cope with customer rebates or other payment obligations.
Different banks have liabilities (debts and liabilities, bank accounts, deposits, securities issued less than 2years, repos ,...) within an economic system can be classified as liquidity with respect to money, the ease of converting to it. This classification is called money supply and is defined by the different monetary aggregates.
We should add that, like banks, companies can issue debt, and this is likely to be negotiated, for example, fixed income markets, and therefore can also be considered a type of money with a degree of liquidity. This type of emission is called commercial paper, but are not part of any of the monetary aggregates, although it may have the same characteristics as the components of these aggregates.

Money Creation

In the current economic systems, money is created by two procedures:

Legal money, it's created by the Central Bank through the minting of coins and printing bank notes (cash money).

Deposit money is "created” by private banks through the book-entry deposit signed by customers.

The amount of money created is measured by the monetary aggregates.

Disclaimer: When it comes to money created by private banks, they do not really believe it, so there is legal money converting the call money bank with a ratio of 1 to 1. This expression is that banks have a commitment for immediate payment, in lawful money (currency), with its depositors, that is, debt is easily realizable daily (expiration day). This creates the impression that the bank has 100% of our money saved, but in reality it is not. When a customer refers your account and view your balance, all you're seeing is an accounting entry that the bank owed him, and that the bank has borrowed some money from all their depositors to another customer through credit, or can be invested in bonds or shares of companies. The bank usually have a reserve (legal 2% plus operating) cash to meet its payment obligations, such as withdrawing cash from customers, transfer amounts to other entities, etc. .., the All other assets are bonds, stocks, mortgages, loans, offices, etc.  That money can be converted to a greater or lesser extent (liquid assets). That is why the existence of the "bank run" and that if all bank customers to exercise their right to withdraw all their money, the bank cannot deal with such an undertaking to pay in lawful money, in this case would occur a bank failure in which would have to liquidate assets (bonds, stocks, etc.), as in any bankruptcy. In the current system is very unlikely to happen as there are mechanisms to try to prevent bank failures due to these fears, as an example, we have the financial crisis of 2008, where we have seen several banks have been rescued by Governments and central banks to prevent these failures. 
In short, the bank has, for example, 10% of the value of deposits in cash, does not mean that 90% of the remaining money exists in real, virtual or imaginary, that 90% of the value is contained in other assets (bonds, equities, credits, etc.). It should also be noted that if a customer writes a check or make a transfer to an account at another bank, the bank will send money home legally (notes and coins) to the destination bank, but this is not done or immediately, or directly, but by clearing calls, or, electronic clearing systems, which are calculated on the net balances of banks which have been received and issued checks, transfer or other means of payment, and every certain period (daily - weekly) is withdrawn or paid legal money (banknotes and coins) from them as those stocks. 

MONEY BACK 

It is considered that the value of money should be backed with precious metals (gold, silver, etc.) Or foreign currency, however, none of these methods is safe, considering that its value is subject to supply and demand, and there is no guarantee that suddenly not discovered large reserves of metal ores or build an application to increase its demand. The same applies to currency. Since money is not currently supported by any particular asset is called Money Trust. Has recently been questioned both relationships, both of gold backing the law of supply and demand, in the amount of money. 
In fact, money is the result of a social pact, which all agree to deliver their goods or services to others in exchange for currency symbols (notes, coins, etc..), Therefore, support money is the sum of goods and services of the population, ie, the Gross Domestic Product or GDP. 
The Government should prevent the monetary aggregate is greater than the GDP to sustain its value. However, the government may choose to print more bills that would lead to inflation.