Money is at the heart of the global economic system. The Open Journal has already dealt with the myths about them, as well as the history of the rise and fall of the gold standard . Today we will analyze what facts about money every adult needs to know.
1. Necessary qualities of money.
In order for money to be recognized by the population and business, it must have the following qualities:
- wide availability – each person can get them for personal use;
- inexpensive use – they should at least lose in value with frequent use;
- durability – should not be damaged during storage;
- easy divisibility – calculations by them should be convenient for ordinary citizens;
- convenience for transportation;
- Reliability – protection from counterfeiting and widespread trust on the part of citizens.
Throughout the history of mankind, these qualities have been achieved – with varying success for different states – first with the help of metal coins, and then – banknotes. Now the electronic money system dominates.
2. What is the money for.
Money performs several key functions in the economy. They are used as a means for the following operations:
- exchange – money acts as a universal equivalent, through which different goods and services are equated to each other;
- calculation – simplify mathematical operations in the economy;
- lending – the moment of payment differs from the moment of receipt of the purchased good;
- savings – with the help of money you can save and invest.
There are other, narrower functions. So, money serves as a measure of status for people (the size of the state) or entire states (the size of GDP or gold reserves ).
3. The value of money changes over time.
Over time, money depreciates ( inflation ), but there are also much rarer cases when their value grows. This situation is called deflation . Other terms to remember along with those mentioned are hyperinflation , when the value of money falls very quickly and unpredictably, and stagflation, when inflation is accompanied by a contraction of the economy.
4. Rule 72
How to quickly find out over what period of time the capital will double if the profits are reinvested? To do this, you need to divide the number 72 by the rate of money growth. If the percentage of investments is 10, then the capital will double in 7.2 years. At 5%, the doubling period will increase to 14.4 years. The same principle is used to calculate the loss in value of money: 72 divided by the amount of inflation. So, with inflation of 4%, the currency unit loses half its value in 18 years.
5. Lies about risk-free money investments.
There is no investment without risk. Even when investing in government bonds that are considered highly reliable, there is a chance that their value will decline. The situation is similar with deposits in the most reliable banks.
6. Gresham’s law.
Bad money drives better money out of circulation. It is this law that explains the gradual disappearance of silver and gold coins from circulation – they were replaced by money from nickel alloys. Other things being equal, people prefer to save coins made of precious metals , rather than exchange them for banknotes or other cash from salable materials.
7. The state actively manipulates money.
In almost all countries, financial authorities actively use monetary (monetary) policy to regulate the supply and demand of money. This allows you to influence investment activity, exchange rates and other economic phenomena. The entire world economy now largely depends on such an element of monetary policy as quantitative easing .
8. Cash plays a relatively small role in the money supply.
At the beginning of May 2022, the broad money supply in Russia amounted to 83.7 trillion rubles. Of these, cash (aggregate M0) accounted for only 13.5 trillion rubles, or 16%.
9. Money is almost five thousand years old.
Their first prototypes appeared in Ancient Mesopotamia – its citizens used clay tablets (some of which have survived to this day) to record transactions with barley, wool, and silver.
10. The wealth of wealthy people is relative.
In the minds of citizens, billionaires are associated with piles of money. But such a representation is not true. The main role in the wealth of businessmen is played by the stakes in companies that they own and / or manage.
The more expensive the shares, the greater the capital of the billionaire. With the loss of market capitalization, the size of the fortune also falls. Mostly due to this reason, according to Bloomberg, the 500 richest people in the world lost $1.4 trillion from the beginning of 2022 to mid-June. using the Bloomberg Billionaires Index .
About other curious qualities of money and their features, read a special selection of the Open Journal dedicated to personal financial planning.