Early notes

Today's paper money is produced and controlled by governments through a system of banks. That's why we talk about bank-notes. Originally, though, paper money had nothing to do with banks. It was started by Chinese goldsmiths and silversmiths 1,200 years ago. Why? Well, there were three main reasons.

1. Metal coins were heavy. It was difficult to carry and use large numbers of them.

2. They were easy to steal.

3. China only had limited amounts of precious metals. It couldn't use them all to make coins.

To solve these problems, goldsmiths and silversmiths of the T’ang dynasty (618-907) began to produce special receipts. These were printed notes which showed that their customers owned a certain amount of money. As a result it was possible to do business with paper instead of using metal coins.

The oldest Chinese notes which still survive come from the Ming dynasty (1368-1644). They're made of tree bark and some of them are very large. Take the оnе-kwan note, for example. It measured 22.8cm. x 33cm. and was worth the same as 1,000 copper coins weighing 3.5 kilos.

The introduction of notes like these changed economic history. And not just in China. Paper money soon became popular in Europe, too. For a long time, though, it wasn't made and controlled by governments. In fact the first official European bank notes (issued by the Swedish Stockholm Bank) didn't appear until 1661.

Notes:

BC – short for ‘before Christ’. Before the birth of Jesus

ancestors – members of a family who lived hundreds of years ago

goldsmith – people who make and sell objects made of gold (e.g. coins, jewellery, etc.)

dynasty – a series of leaders who all come from the same family

 

2. Do you think the following statements are true or false? Discuss your answers in pairs.

 

1. The first coins were made in China.

2. The first coins were called staters.

3. The first coins were made around 600 BC.

4. The first coins were made of silver and gold.

5. Salt, tobacco, whale teeth and stones were used as money many years ago.

6. People in Mesopotamia used small pieces of paper as money 4.500 years ago.

7. Early forms of money were used to buy goods.

8. Pieces of silver and gold were clearly marked so that everyone could recognise them.

9. The first paper notes appeared in the ancient Kingdom of Lydia.

10. The first king to have his portrait on a coin came from Ancient Rome.

11. The oldest Chinese notes were made of tree bark and were very large.

12. The ancient kingdom of Lydia was in the country now known as Turkey.

13. China had limited amounts of precious metals; it was one of the main reasons of appearing bank-notes.

14. The Lydia’s coins had a tiger’s head on them.

15. Metal coins were easy to carry and use large numbers of them.

16. Tobacco was used as a form of money in America.

17. Shells were used as a form of money in North America.

18. One of disadvantages of early forms of money was difficulty in measuring their value accurately.

19. The first gold and silver money appeared in Ancient Egypt about 4500 years ago.

20. The first gold and silver money had fixed shape and were clearly marked so that everyone could recognize them.

21. Early forms of money were used to pay for marriages, fines and debts.

Text 2

1. Read the text “Money and its Functions” and say what the main functions of money are.

Money has four functions: a medium of exchange or means of payment, a store of value, a unit of account and a standard of deferred payment. When used as a medium of exchange, money is considered to be distinguished from other assets.

Money as the medium of exchange is believed to be used in one half of almost all exchange. Workers exchange labour for money, people buy or sell goods in exchange for money as well.

People do not accept money to consume it directly but because it can subsequently be used to buy things they wish to consume. To see the advan­tages of a medium of exchange, imagine a barter economy, that is, an econ­omy having no medium of exchange. Goods are traded directly or swapped for other goods. The seller and the buyer eachmust want something the other has to offer. Trading is very expensive. People spend a lot of time and effort finding others with whom they can make swaps. Nowadays, there exist ac­tually no purely barter economies, but economies nearer to or farther from the barter type. The closer is the economy to the barter type, the more waste­ful it is.

Serving as a medium of exchange is presumed to have for centuries been an essential function of money.

The unit of account is the unit in which prices are quoted and accounts are kept. In Britain, for instance, prices are quoted in pounds sterling; in Europe, in еuros. It is usually convenient to use the same unit to measure the medium of exchange as well as to quote prices and keep ac­counts in. However, there may be exceptions. During the rapid German in­flation of 1922-23 when prices in marks were changing very quickly, German shopkeepers found it more convenient to use US dollars as the unit of ac­count. Prices were quoted in dollars though payment was made in marks. The same goes for Russia and other post-communist economies who used the US dollar as a unit of account, keeping their national currencies as means of actual payment. The higher is the inflation rate, the greater is the probability of introducing a temporary unit of account alongside the existing units for measuring medium of exchange.

Money is a store of value, for it can be used to make purchases in future. For money to be accepted in exchange, it has to be a store of value. Unless suitable for buying goods with tomorrow, money will not be accepted as payments for the goods supplied today. But money is neither the only nor necessarily the best store of value. Houses, stamp collections, and interest-bearing bank accounts all serve as stores of value.

Finally, money serves as a standard of deferred payment or a unit of account over time. When money is borrowed, the amount to be repaid next year is measured in units of national currency, pounds of sterling for the United Kingdom, for example. Although convenient, this is not an essential function of money. UK citizens can get bank loans specifying in dollars the amount that must be repaid next year.

Thus, the key feature of money is its use as a medium of exchange. For money to be used successfully as a means of exchange, it must be a store of value as well. And it is usually, though not always, convenient to make money the unit of account and standard of deferred payment.

Notes:

1. to quote — регистрировать, называть

2. the same goes for... — то же самое относится к...

 

2. Scan the text again to answer the following questions:

 

1. What are the main functions of money?

2. How important is the function of money as a medium of exchange?

3. Why do people accept money as a medium of exchange?

4. What is a barter economy?

5. Why are barter economies wasteful?

6. When don't national currencies serve as units of account? Give examples.

7. When is money used as a standard of deferred payment?

3. Match two halves of the sentences:

1. Classical economists considered money to be no more 2. Money is an asset 3. Money is used as a standard of de­ferred payment, 4. Loans provided by commercial banks, building societies, etc. 5. In addition to being a means of exchange money is also 6. Swap in a money market is a pro­cess 7. Exchange rate is 8. GNPs are measured in the coun­try's local monetary unit, 9. The foreign exchange market is a market where foreign currencies are sold and bought 10. Barter is a method of trading goods and services for other goods and services

a. either through private exchange dealers or a country's central bank. b. known to be a means of measuring the value of men's labour. c. of exchanging one kind of finan­cial asset or liability for another. d. than a medium of exchange. e. or currency. f. for it is an accepted measure of future payments in contracts. g. without the use of money. h. the price of one currency in terms of some other currency, for in­stance, the price at which dollars might be exchanged for pounds. i. are an essential source of money for everyday consumption and purchase of personal and business assets. j. that is accepted as a means of payment.