topic what is money

When most individuals discuss the concept of money, they are typically referring to currency, specifically paper money and coins.. Whether money is shells or rocks or gold or paper, it h

VNU UNIVERSITY OF ECONOMICS & BUSINESS

Topic

What is Money?

Group: Group 1 Class: QH-2021E-KT CLC 1 Lecturer: M.Econ Phùng Thị Thu Hương

Name Student Participation

1 | Nguyễn Nam Anh | 21051087 100%

2| NguyễnMạnh | 21051135 100%

Đức

3| NguyénKim | 21051239 100%

Ngân

4| Tran Tién Anh | 21051094 100%

5| ĐổThuNga | 21051234 100%

6 | Đàm Quang Minh | 21050099 100%

7| Hà Đức Trung | 21050103 100%

Table Of Contents

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I Introduction

Money is a powerful tool It can be used to buy food, shelter, clothing, and other essentials of life It can also be used to buy luxuries and experiences that can make our lives more enjoyable And, of course, money can be used to invest in our future and build wealth

But money is also a complex and controversial topic It can be a source of stress and anxiety, and it can lead to greed and corruption It can also be a divisive force in society, creating inequality and resentment

To understand more about the impact of money on the economy, it is crucial to gain a comprehensive comprehension of the nature of money Today, we will embark

on a journey to demystify money, exploring its origins, functions, and its profound impact on our lives We will navigate the financial landscape, understanding how money shapes economies, governments, and individuals

A Meaning of money

1, Definition of money

As the word money is used in everyday conversation, it can mean many things, but to economists it has a very specific meaning To avoid confusion, we must clarify how economists’ use of the word money differs from conventional usage

Economists define money as anything that is generally accepted in payment for goods or services or in the repayment of debts

2 Relevant concepts

2.1 Currency and cheques

Currency, which encompasses both physical dollar bills and coins, clearly falls within this classification and represents one form of monetary exchange When most individuals discuss the concept of money, they are typically referring to currency, specifically paper money and coins

For instance, when making purchases at a roadside vegetable stand in Viet Nam, you often utilize currency as a means of payment; in this scenario, paper money serves

as a medium of exchange

However, restricting the definition of money solely to currency is overly restrictive in the eyes of economists This is because checks are also accepted as a valid form of payment for transactions, leading to the inclusion of checking account deposits within the realm of money

Furthermore, a more expansive definition of money is often necessary, as other assets like savings deposits can effectively serve as money if they can be readily and effortlessly converted into either currency or checking account deposits Consequently, it becomes evident that there is no single, precise delineation of money

or the money supply, even within the field of economics

2.2 Wealth

To further complicate matters, the term "money" is frequently employed interchangeably with "wealth Consequently, while "currency" represents a definition

of money that is overly limited, this broader popular usage is excessively expansive Economists draw a distinction between money, encompassing currency, demand deposits, and similar assets used for transactions, and wealth, which encompasses the complete array of assets that function as stores of value Wealth encompasses not solely money but also other holdings like bonds, common stocks, artwork, real estate, furniture, automobiles, and houses

For example, Pham Nhat Vuong, the richest man in Viet Nam, people say that

“Pham Nhat Vuong has a lot of money” Not because of high currency but about his bonds, stocks and real estates As the founder, Pham Nhat Vuong 2023 is currently Vingroup's largest individual shareholder, directly owning more than 985.5 million shares (25.47% of share capital)

In addition, in Pham Nhat Vuong's assets in 2023, more than 1.26 billion VIC shares (32.58%) are also owned by another related legal entity, Vietnam Investment Group Joint Stock Company, Mr Vuong personally owns more than 1.17 billion VIC shares

The total number of VIC shares that billionaire Ha Tinh owns directly and indirectly is nearly 2.16 million shares, equivalent to assets of more than 137.33 trillion VND (about 5.9 billion USD) According to the Forbes list just released, Pham Nhat Vuong's fortune in 2023 is still the richest person in Vietnam, ranked 457th

2.3 Income

People also use the word “money” to describe what economists call income Income is wealth that is usually calculated into money that an individual, a business,

or an economy receives over a certain period of time from a job, service, or activity Income can include items such as salaries, wages, property rentals, business profits For example, the average salary of an accountant in Viet Nam is 8 million VND per month, which means that their income ts also 8 million VND every month if they only work as an accountant and have no other jobs

In the field of accounting, it represents the surplus of income compared to expenses within a specified financial reporting period, sometimes denoted as gross profit or earnings Additionally, it can signify the extent to which the overall value of assets has grown throughout the accounting timeframe In the United States, it predominantly denotes the earnings of businesses, while in other English-speaking regions, it typically refers to the total revenue generated

Income can signify the compensation individuals earn for their labor in the form of wages or salaries, or it can represent the financial gains achieved by companies (referred to as company profits in the USA) Gross National Income (GNI) encompasses the aggregate economic output, including both domestic and international, that is claimed by a country's residents

B Function of Money

Money is something that people use every day We earn it and spend it but don't often think much about it Whether money is shells or rocks or gold or paper, it has three primary functions in any economy: as a medium of exchange, as a unit of account, and

as a store of value

1, Medium of exchange

As a medium of exchange, money can be used to make payments to all the transactions related to goods & services It is the most important function of money

As money is universally accepted, therefore all exchanges take place in terms of money

This function of money eliminates the major problem of double coincidence of wants and the problems related to the barter system

This function of money facilitates the trade in an economy and allows purchase and sale to be conducted independently of each other

Money itself does not have the power to satisfy human wants However, it commands the power to buy goods and services wanted and required by human beings, which can in return satisfy their wants

In almost all market transactions in our economy, money in the form of cash or checks is the medtum of exchange; it is used to pay for goods and services Using money as a medium of exchange improves economic efficiency by eliminating a significant amount of time spent exchanging goods and services

Money is crucial in an economy: it is a lubricant that makes the economy run more smoothly by lowering transaction costs, thereby encouraging specialization and division of labor The need for money was so great that almost every society except the most primitive invented it

For a commodity to function effectively as money, it has to meet several criteria:

It must be easily standardized, making it simple to ascertain its value

It must be widely accepted

It must be divisible so that it is easy to make change

It must be easy to carry

It must not deteriorate quickly

Unit of account

As a measure of value money works as a common parameter, in which the value

of every good & service is expressed in monetary terms

This function of money helps in maintaining the business accounts, which would be impossible otherwise

It helps in determining the relative prices of goods & services due to this For example, In India, Rupees is the unit of account, in America, it is Dollar,

ete

By limiting the value of all goods & services to a single unit, it becomes very easy to find out the exchange ratio between them and to compare their prices

For example, the value of every product is estimated in monetary terms The value of | egg is estimated at 3000 VND in Vietnam, and the value of a packet of bread is around 20 000 VND So, money works as a measure of the value of all goods

& services and is the amount that is required to be received or paid during the transaction Therefore, it is one of the most essential functions of money

You can think of money as a yardstick-the device we use to measure value in economic transactions If you are shopping for a new computer, the price could be quoted in terms of t-shirts, bicycles, or corn So, for instance, your new computer might cost you 100 to 150 bushels of corn at today's prices, but you would find it most helpful if the price were set in terms of money because it is a common measure of value across the economy

It is used to measure value in the economy We measure the value of goods and services in terms of money, just as we measure weight in terms of kilograms or distance in terms of kilometers To see why this function is important, let's look again

at a barter economy where money does not perform this function

3 Store of value

Money as a store value can be used to store wealth in the most economical and convenient way and to transfer the purchasing power from the present to the future Money as a store value has the following advantages:

® It was very difficult to store wealth in terms of goods because of their perishable nature and high cost Money provides a solution to this problem as one can store money for as long as possible

@ Money has the quality of universal acceptability Therefore, one can at any time use money in exchange for goods and services

@ Money is easily portable, and saving money is much easier and more secure than saving goods for future use

If I work today and earn 25 dollars, I can hold on to the money before I spend it because it will hold its value until tomorrow, next week, or even next year In fact, holding money is a more effective way of storing value than holding other items of value such as corn, which might rot

Although it is an efficient store of value, money is not a perfect store of value Inflation slowly erodes the purchasing power of money over time

This property of money is useful because most of us don't want to spend our income immediately after receiving it, but would rather wait until we have time or want to make a purchase

Money is not a unique store of value; any asset, whether money, stocks, bonds, land, a house, art, or jewelry, can be used to store wealth Many such assets have advantages over currencies as stores of value: They often pay owners higher interest rates than currencies, experience price appreciation, and provide services such as providing a roof over their heads Other assets incur transaction costs when converted into currency

Therefore, the fact that currency is the most liquid asset explains why people are willing to hold it, even though it is not the most attractive store of value How well a currency is a store of value depends on the price level because its value is determined

by the price level

For example, a doubling of all prices means that the value of money drops by half In periods of high inflation, when price levels rise rapidly, currencies will quickly depreciate and people will be less willing to hold wealth in this form This is especially true during periods of extreme inflation, known as hyperinflation, where monthly inflation exceeds 50%

The money loses value so quickly that workers are paid several times a day and then released to spend their wages before the money becomes worthless No one wanted to keep currency, so the use of currency for transactions decreased and barter became more dominant Transaction costs rose sharply, and economic output fell sharply as expected

C Evolution of the payment system

1 Commodity money

The earliest forms of money were simple commodities that were used to facilitate trade, where people exchanged goods and services directly with each other such as shells, beads, metals, or livestock These commodities had intrinsic value and were widely accepted as a medium of exchange

However, they also had some drawbacks, such as high storage and transportation costs, risk of theft or loss, and difficulty in standardizing and verifying their quality and quantity.In prehistoric times, Vietnamese people used simple methods of exchanging goods, such as direct exchange or exchange through intermediaries

By the time of any bronze age, Vietnamese people had begun to use primitive currencies, such as those in the shape of animals, made of stone or bronze

2 Fiat Money

The emergence of modern banking and finance led to the creation of fiat money, which is not backed by any commodity but derives its value from the government decree or law that makes it legal tender Fiat money allows for greater flexibility and control over the money supply, but it also depends on the credibility and stability of the issuing institution Fiat money can be subject to inflation or deflation if the money supply is not managed properly

It began in the 10th century when the state of Dai Co Viet, under the reign of Dinh Tien Hoang, issued metal coins with a round shape and square hole, inscribed with Chinese characters Over the subsequent dynasties of Le, Ly, Tran, Ho, Later Le, Mac, Tay Son, and Nguyen, these metal coins underwent various changes in shape, denomination, material, and aesthetics

Paper money appeared in Vietnam in 1396 during the Ho dynasty and was further developed in the 19th century under the Nguyen dynasty In addition to this, compressed silver and gold were also used as currency.u

Since then, Vietnamese currency has undergone six currency exchanges to adjust

to the country’s socio-economic situation Today, Vietnamese currency denominations range from 200 dong to 500,000 dong

3 Cheques

One of the key innovations in the history of money is the introduction of checks, which are written orders to pay a certain amount of money from one account to another Checks have several advantages over other forms of money, such as convenience, security and traceability They also enable the creation of credit and banking institutions, which play a vital role in the modern economy

Therefore, checks are very important in the evolution of the money system, as they represent a significant improvement in the efficiency and reliability of monetary transactions

4 Electronic Payment

The next stage of the payment system evolution was based on the use of electronic payment instruments, such as credit cards, debit cards, electronic funds transfers, and mobile payments

These instruments were more convenient and efficient than paper money and coins, as they enabled faster and cheaper transactions, increased security and traceability, and facilitated cross-border payments

However, they also introduced new risks and challenges, such as cyberattacks, fraud, privacy breaches, interoperability issues, and regulatory uncertainty

5 E-money

Electronic money, or e-money, is a digital or virtual currency that is stored on a technical device, such as a credit card, debit card, mobile wallet, etc It can be used

to make payments to merchants that accept e-money, either online or in-store E- money is typically backed by fiat currency, such as the US dollar or VND, and can be redeemed for cash at any time

In recent years, new forms of money systems have emerged in response to the challenges and opportunities of globalization and digitalization Cryptocurrencies are digital assets that use cryptography to secure transactions and control the creation of new units

These instruments are more convenient and efficient than electronic payment instruments, as they leverage blockchain technology, artificial intelligence, big data, and cloud computing to offer greater speed, scalability, transparency, and innovation However, they also pose new risks and challenges, such as volatility, governance, legal status, consumer protection, financial inclusion, and monetary policy implications

D Measuring money

The definition of money as anything that is generally accepted as payment for goods and services tells us that money is defined by people's behavior