Learn a little bit of finance every day

Chapter 2 Money: A Financial Enlightenment (1)
The meaning of money: what is "money"

During the Wei and Jin Dynasties, there was an important minister named Wang Yan, whose name was Yifu.Wang Yifu is the younger brother of Wang Rong, one of the "Seven Sages of the Bamboo Forest". Like Wang Rong, he is a well-known romantic and celebrity.He regards money as the embodiment of corruption and filth, and never touches it.One day, his wife wanted to try him, so she strung copper coins around his bedside.Wang Yifu woke up and couldn't get out of bed, so he called out to his maidservant: "Take away Aduwu!" "Aduwu" was a spoken language of the people at that time, meaning "this thing".Because of Wang Yan's allusion, "Aduwu" has become an alias for "Qian" since then, and it has a contemptuous connotation.

"Money" is actually the common name for currency.People in the world have different praises and criticisms for it. Some people compare it with precious time: time is money;So what exactly is money?

To understand finance, you must first understand money.Money is the key to unlocking finance.Although we deal with money every day, not many people really understand it.For example, can you imagine that the ubiquitous shells used to be the common "money" in ancient times?Historically speaking, human currency has experienced the evolution of physical currency, metal currency, and credit currency.In addition to corn, shells, cloth, cocoa beans, and whale teeth have all been used as currency.

What makes money so amazing?It seems that anything can be used as currency.

In fact, in history, different commodities have been used as currency in different regions, and later gradually transitioned to precious metals such as gold and silver.With the development of commodity production and the expansion of exchange, the supply of precious metals such as gold and silver could not meet the growing demand for currency, so paper money appeared later.In the 20th century, metal currencies such as gold and silver gradually withdrew from the currency stage, and banknotes and bank checks became the main means of circulation and payment in various countries.

So, there are so many currencies in the world, which currency do we use?

Typically, a country uses only one type of banknote, which is issued and controlled by the central bank.However, there are many countries that use the same currency.For example, the euro is commonly used in EU countries, and the euro is the equivalent currency that circulates freely within the European Union.In addition, a country can also choose the currency of other countries as its legal currency. For example, Panama chooses the US dollar as its legal currency.In the United Kingdom, different versions of the currency can also be issued in different autonomous regions. England, Scotland or even the remote islands of Jersey and Guernsey have different versions of the pound sterling issued by themselves, and can be traded in all regions of the United Kingdom. .However, only the British pound is the only transaction currency recognized by the international community, and other versions of the British pound may be refused to accept outside the United Kingdom.

If we want to understand the role of finance in economic activities, these are not enough. The nature of money is what we need to understand most.Hubbert once had a famous saying: "Only one person in 1 understands the currency problem, and we encounter it every day." The "person" here refers to currency.Currency looks simple, but it is actually very complicated.

In the middle of the 19th century, a member of Parliament Grayton once said, "There are more people who are deceived in the study of the nature of currency than those who are deceived in love." Since the emergence of economics, about "currency" Economists have debated this question endlessly, and to this day, there are still some debates.In contrast, Marx's definition of money is more convincing.

According to Marx's theory, currency is a special commodity that acts as a general equivalent, and is the inevitable product of the development of commodity exchange and the development of value forms.In a developed commodity economy, money performs five functions: a measure of value, a means of circulation, a means of payment, a means of storage, and a world currency.In summary, money has three main functions: medium of exchange, unit of account, and store of value.

The medium of exchange means that everyone can exchange their own things into currency, and then buy other things they need. The unit of account means that currency can be used as a means of measuring value in the economy and society, just like weighing with jin. Money can be used to measure the value of goods and services; a store of value means that money has purchasing power across time periods, so money has a store of value.This is important because people don't want to spend all their income when they get it.

Commodity currency - "barter" to currency as a "matchmaker"

In ancient times, human ancestors lived by hunting.At the beginning, because the hunting tools were very primitive, the prey caught were often not enough to eat, so the prey was distributed uniformly by the tribe.Later, a clever young man in the tribe invented the bow and arrow, and more prey were captured.But the bow and arrow maker did not get as much food from hunting himself as he made a bow and exchanged it with others, so he simply stopped participating in hunting and devoted himself to making bows and arrows and exchanging food with others.As a result, division of labor and exchange emerged in the tribe.Later, with the expansion of the division of labor, some people who made other items appeared, and like this smart young man, they exchanged the items they made for what they needed.

"Book of Changes Xici Zhuan" said: "Japan and China are the market, call the people of the world, and gather the goods of the world. After the transaction, everyone gets what they want and the goods pass." This is the scene of bartering.It means that a market is formed at noon, and a lot of goods in the vicinity are gathered together, people come to exchange, each trades and leaves, and everyone gets what they need.

However, this kind of exchange has a disadvantage, that is, it cannot achieve equivalent exchange.In order to achieve equivalent exchange, people use other things as a medium of exchange, such as animal skins for the French, cocoa beans for the Aztecs, and almonds and corn for the primitive inhabitants of India. commodity currency.Since then, human beings have begun to use currency as the medium of commodity exchange, ending the era of simple "barter".

The famous American financier Mishkin mentioned in his book "Monetary Finance" that any item that performs the function of currency must be generally accepted-everyone is willing to use it to pay for goods and services.An item that has value to anyone is the most likely to become currency.Therefore, after a long period of natural elimination and the development of commodity currency in the later stage, people naturally choose precious metals such as gold and silver as payment currency.The advantage of using metal currency is that it needs to be manufactured artificially, cannot be obtained in large quantities from nature, and is easy to store.As a result, rare gold, silver and difficult-to-smelt copper gradually became the main monetary metals.

With the development of civilization, people gradually established a more complex and advanced currency system.People began to mint coins of uniform weight and color.In this way, when using currency, neither the weight nor the color test is required, which is much more convenient.Coins often feature the king's or emperor's head, intricate coats of arms and seals to prevent counterfeiting.

The earliest metal currency in China was the copper shell of the Shang Dynasty.The Shang Dynasty is also called the Bronze Age in the history of our country. The fairly developed bronze smelting industry at that time promoted the development of production and the increase of trading activities.Therefore, the most widely circulated shell coin at that time was inconvenient due to the unstable source, so people looked for more suitable currency materials, and bronze coins came into being, which people called copper shells.With the development of smelting technology, copper is no longer a rare and precious metal, and people began to use gold and silver, which are more difficult to obtain, as metal materials for minting coins.For quite a long time thereafter, gold and silver were commonly used currencies. In the 16th century, Columbus discovered the "New World". A large amount of gold and silver from the Americas flowed into Europe through Spain, and gold and silver currencies were circulated around the world.

In finance, currencies composed of precious metals or other valuable commodities are collectively referred to as commodity currencies.

For a long period of human development, metal currency has played the role of a medium of exchange in almost any country and society.However, with the progress of human civilization, metal currency was eliminated because metal currency was too heavy, inconvenient to use, difficult to circulate, and difficult to transport from one place to another.

Therefore, paper currency came into being.

Unhijaking Paper Money: Are Paper Money Money?
During the Northern Song Dynasty in China, a kind of "Jiaozi" appeared in Chengdu, Sichuan, which is the earliest banknote in the world.In the early years of the Northern Song Dynasty, the commerce in Chengdu was very developed and the currency was busy, but the iron coins cast at that time were not in smooth circulation.As a result, 16 local wealthy families began to privately print a coupon made of mu tree bark that could replace coins, which was later called "Jiaozi".The local government initially wanted to ban this "new currency", but the role of this "new currency" in economic circulation is very obvious, so the government decided to switch to official printing.

The text explanation in "Chengdu Financial Chronicle": "Jiaozipu in Yizhou in the Northern Song Dynasty is actually the earliest monetary and financial institution in Sichuan history, and Jiaoziwu in Yizhou is the earliest banknote issuing institution approved by the state. "The emergence of "Jiaozi" facilitated business exchanges and made up for the shortage of cash, which is a major achievement in the history of my country's currency.

Today, we no longer use gold ingots, silver ingots, or copper plates to buy things, but use some "paper".The value of these "paper" is almost negligible, but it has magical power.It can be exchanged for anything you want, even gold, which seems inconceivable.

In the era of commodity currency, metal currency will wear out and become worthless after being used for a long time.People realized whether other things could be used instead of metal for circulation, so paper money appeared.Paper money was originally defined in monetary finance as a piece of paper that functions as a medium of exchange.Initially, the banknotes had the function of cashing metal currency, and later evolved into non-cashable banknotes.A banknote cannot be exchanged for gold or silver, but it has the same purchasing power, and its purchasing power comes from the authority and reputation of the government.As long as the government declares it legal tender, people must accept it when paying debts.In this way, because paper money is much lighter than metal money, it is easy to circulate, and it does not require expensive raw materials, so it was quickly accepted by people.

In fact, accepting banknotes also requires some conditions.Paper money was accepted as a medium of exchange only when there was sufficient trust in the authority that issued it, and when printing technology had advanced to such an advanced stage that counterfeiting would be extremely difficult.

(End of this chapter)