Money is anything that fulfills three functions, a medium of exchange, a store of value and a unit of account (Davies, 2002). This means people can save it and use it later to purchase goods and services in the future. Money is also a unit of account as it measures value, it can be divided equally and it is fungible. It has been used for years as a medium of exchange during the period of the barter system. Many years ago communities were very small, they were far apart and had fewer people in them. Basically, if you wanted to trade something you had for something you wanted, you had to locate people in your community who had the goods you wanted and wanted the goods you had. As communities grew, trading became much easier. All you needed to …show more content…
Any commodity that was high in demand such as seashells, tobacco and herbs were used to barter with at the early stages of money development and especially in the hunting stage of human development. As money developed animals were used as means of payment or exchange, this had many disadvantages as they were not all identical, they could not serve as a standard unit and due to abrupt fluctuations in the animal supply, the value of animals was constantly changing. This store of value was proved to be unsatisfactory. As money evolved it eventually got replaced by metals such as silver and gold. These metals were used in the production of coins, as bars of gold and silver were not easily divided to purchase inexpensive goods. These metals were not only valuable, but they were also scarce. Therefore, It was later realized that security was much more important than value and metals were then replaced by paper money. To begin with, paper money was a substitute for metals as people would give their metals to the bankers to hold on to and bankers would, in return, give them receipts. In the course of time, paper money was added to the money supply. At first, notes could be issued by all commercial banks but as time passed paper money became