Thanks to money, the economic exchange has become easier, faster and more efficientefficientefficient. Money facilitates trade. Some say it never sleeps, but constantly circulatesto circulatecirculates in the economy.
Exercise 1
There are many proverbs and sayings about money. Do you know some of them? Read the ones below and write down what you think they mean.
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Ćwiczenie alternatywne: What do you think about following proverbs: 1. Money doesn't bring happiness. 2. Time is money – Edgar Allan Poe. 3. Pecunia non olet; Latin: Money doesn’t stink. 4. Pecunia una regimen est rerum omnium; Latin: Only money is the ruler of the whole world; Publilius Syrus. 5. Look after the pennies and the pounds will look after themselves or In for a penny, in for a pound. 6. Money makes money.
Ćwiczenie alternatywne: What do you think about following proverbs: 1. Money doesn't bring happiness. 2. Time is money – Edgar Allan Poe. 3. Pecunia non olet; Latin: Money doesn’t stink. 4. Pecunia una regimen est rerum omnium; Latin: Only money is the ruler of the whole world; Publilius Syrus. 5. Look after the pennies and the pounds will look after themselves or In for a penny, in for a pound. 6. Money makes money.
Money doesn’t bring happiness.
Time is money (Edgar Allan Poe).
Pecunia non olet (Latin: Money doesn’t stink).
Pecunia una regimen est rerum omnium (Latin: Only money is the ruler of the whole world; Publilius Syrus).
Look after the pennies and the pounds will look after themselves (In for a penny, in for a pound).
Money makes money.
Today it is hard to imagine an economy without money. However, this was not always the case. Even now you can find examples of barter exchange, which is a directdirectdirect exchange of goods against goods (or services) without the use of money. What is money? Money is an agent in the economic turnovereconomic turnovereconomic turnover. It is a good commonlycommonlycommonly accepted as a form of payment for other goods and services.
ThroughoutthroughoutThroughout the history of mankindmankindmankind money took various forms. For many centuries, mainly preciousprecious (metals)precious metals (gold, silver, bronze and coppercoppercopper) served the function of money. In the middle of the third millennium BC in ancientancientancient Egypt metal barsbarbars began to be used as money, if necessary cut into smaller pieces. Soon, money in a similar form appeared in China. The oldest round metal coins are known from Sardes in Lydia (Asia Minor) and come from around 650 BC. The ancient monetary systems were based on gold, silver and copper, and the value of the coins was equal to the value of the metal they were made of.
Changes in the mutualmutualmutual price relations of these metals and so‑called spoiling of the money by the rulers caused a gradualgradualgradual depreciation of money (the law of Copernicus‑Gresham). Nicolaus Copernicus is the author of the law of “bad” money, according to which the inferiorinferiorinferior money, i.e. made of inferior oreoreore and of lesserlesserlesser value, displacesto displacedisplaces “better” money from circulation. Copernicus described the law in the third version of his treatisetreatisetreatise “On the Mintingto mintMinting of Coin” (known as “Monetary Treatise”), in which he wrote: “When a new, worse coin is introduced into circulation next to the old, better coin, it not only infectsto infectinfects it, but drives it out of circulation”. DecadesdecadeDecades later, similar views were presented by English financier, Thomas Gresham.
Money depreciationdepreciationdepreciation means lowering the purchasing powerpurchasing powerpurchasing power (value) of money. In the domestic market, it manifests itself in a decrease in the amount of goods and services that can be purchased for a certain amount of money. As a rule, it results in inflation. The reverse phenomenon – the increase in the value of money – is called appreciation. If the value reduction takes place as a result of official decisions, it is called devaluation.
History of money
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13th and 14th century After the fall of Rome, there was a period of financial chaos in Europe, ending with the reform of Charles the Great (around 800), introducing the system of silver currency, the so-called denar system (1 pound = 20 solids = 240 denars). The gradual "spoiling" of coins by the rulers led to the formation of so-called brakteates - coins so thin that the breaking of the pattern was possible only on one side.
At the turn of the twelfth and thirteenth centuries a penny reform took place, which involved the introduction of a "thick", solid silver coin (in Poland, the Czech and Prague groshes around 1300). In the second half of the thirteenth century, gold coins appeared (in 1252 – florin in Florence, 1284 – ducat in Venice), which led to the creation of a bimetallic system based on two metals: gold and silver (introduced in Poland in 1528 r.)., 16th–18th century In the sixteenth century, the inflow of silver to Europe from America caused its depreciation against gold. The Polish zloty appeared as a settlement unit (equivalent to 30 groshes) in the mid-fifteenth century, and as a real coin - in 1564. The creation of public banks at the dawn of modern times brought about the development of clearing money. In the 17th century, the first issuing banks were established (Sveriges Riksbank in 1668, Bank of England in 1694) and paper money appeared in Europe. Earlier, as early as in the ninth century, paper money was known in China. The oldest preserved paper money is Chinese 14th century kwan. The first Polish issue of paper money was made in 1794., 19th century In the nineteenth century, the term "metallic money" had a slightly different meaning than in previous centuries. There were already banknotes and coins in circulation (called “currency”), and the bullion was deposited in banks. On request, bills were exchanged for gold or silver. However, since not all banknote holders reported for the precious metals at the same time, the cash flow could have been larger than the bullion resources held. The second half of the nineteenth century brought about the development of banking, the emergence of supranational banking and the export of capital.
13th and 14th century After the fall of Rome, there was a period of financial chaos in Europe, ending with the reform of Charles the Great (around 800), introducing the system of silver currency, the so-called denar system (1 pound = 20 solids = 240 denars). The gradual "spoiling" of coins by the rulers led to the formation of so-called brakteates - coins so thin that the breaking of the pattern was possible only on one side.
At the turn of the twelfth and thirteenth centuries a penny reform took place, which involved the introduction of a "thick", solid silver coin (in Poland, the Czech and Prague groshes around 1300). In the second half of the thirteenth century, gold coins appeared (in 1252 – florin in Florence, 1284 – ducat in Venice), which led to the creation of a bimetallic system based on two metals: gold and silver (introduced in Poland in 1528 r.)., 16th–18th century In the sixteenth century, the inflow of silver to Europe from America caused its depreciation against gold. The Polish zloty appeared as a settlement unit (equivalent to 30 groshes) in the mid-fifteenth century, and as a real coin - in 1564. The creation of public banks at the dawn of modern times brought about the development of clearing money. In the 17th century, the first issuing banks were established (Sveriges Riksbank in 1668, Bank of England in 1694) and paper money appeared in Europe. Earlier, as early as in the ninth century, paper money was known in China. The oldest preserved paper money is Chinese 14th century kwan. The first Polish issue of paper money was made in 1794., 19th century In the nineteenth century, the term "metallic money" had a slightly different meaning than in previous centuries. There were already banknotes and coins in circulation (called “currency”), and the bullion was deposited in banks. On request, bills were exchanged for gold or silver. However, since not all banknote holders reported for the precious metals at the same time, the cash flow could have been larger than the bullion resources held. The second half of the nineteenth century brought about the development of banking, the emergence of supranational banking and the export of capital.
History of money
13th and 14th century After the fall of Rome, there was a period of financial chaos in Europe, ending with the reform of Charles the Great (around 800), introducing the system of silver currency, the so-called denar system (1 pound = 20 solids = 240 denars). The gradual "spoiling" of coins by the rulers led to the formation of so-called brakteates - coins so thin that the breaking of the pattern was possible only on one side.
At the turn of the twelfth and thirteenth centuries a penny reform took place, which involved the introduction of a "thick", solid silver coin (in Poland, the Czech and Prague groshes around 1300). In the second half of the thirteenth century, gold coins appeared (in 1252 – florin in Florence, 1284 – ducat in Venice), which led to the creation of a bimetallic system based on two metals: gold and silver (introduced in Poland in 1528 r.).
16th–18th century In the sixteenth century, the inflow of silver to Europe from America caused its depreciation against gold. The Polish zloty appeared as a settlement unit (equivalent to 30 groshes) in the mid-fifteenth century, and as a real coin - in 1564. The creation of public banks at the dawn of modern times brought about the development of clearing money. In the 17th century, the first issuing banks were established (Sveriges Riksbank in 1668, Bank of England in 1694) and paper money appeared in Europe. Earlier, as early as in the ninth century, paper money was known in China. The oldest preserved paper money is Chinese 14th century kwan. The first Polish issue of paper money was made in 1794.
19th century In the nineteenth century, the term "metallic money" had a slightly different meaning than in previous centuries. There were already banknotes and coins in circulation (called “currency”), and the bullion was deposited in banks. On request, bills were exchanged for gold or silver. However, since not all banknote holders reported for the precious metals at the same time, the cash flow could have been larger than the bullion resources held. The second half of the nineteenth century brought about the development of banking, the emergence of supranational banking and the export of capital.
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Na zdjęciu znajduje się kuferek z monetami, kilka z nich leży na piasku obok. Nieopodal skrzynki leży kieszonkowy zegarek. W tle znajduje się mapa natomiast na dole zdjęcia – muszle. Na zdjęciu zamieszczono następujące informacje: 1. Many other goods were used as money. It depended mainly on their availability and value. Other goods include, among others: salt, sugar, tea, amber or grain. Also today, in conditions of high destabilization of monetary relations, e.g. during hyperinflation, certain goods, usually tobacco, spirit or gold, function as money. 2. Residents of the English colonies in America showed ingenuity in the search for replacements for ore money. An interesting example is the "shell money system" that operated in Massachusetts in the 17th century. In 1641, shells were recognized there as legal tender. Settlers bought shells from the Indians (who were somehow the central bank) in exchange for beaver skins (they played the role of a reserve currency). The exchangeability of the skins and shells sustained the buying power of the shells. However, as a result of increasing difficulties in capturing beaver skins, the shell system ceased to exist. 3. In Lazio (the cradle of ancient Rome), cattle were “the money” (Latin: pecus means cattle, hence the word "pecunia", meaning "money"). Also the Slavs used horned cattle for commercial activities. 4. Natural money, in any form (regardless of whether we talk about gold, cattle, skins or other goods by nature), had limitations from the point of view of economic needs. The most important was the limited access to it and a high dependence on the forces of nature, which are overcome by symbolic (paper) money.
Na zdjęciu znajduje się kuferek z monetami, kilka z nich leży na piasku obok. Nieopodal skrzynki leży kieszonkowy zegarek. W tle znajduje się mapa natomiast na dole zdjęcia – muszle. Na zdjęciu zamieszczono następujące informacje: 1. Many other goods were used as money. It depended mainly on their availability and value. Other goods include, among others: salt, sugar, tea, amber or grain. Also today, in conditions of high destabilization of monetary relations, e.g. during hyperinflation, certain goods, usually tobacco, spirit or gold, function as money. 2. Residents of the English colonies in America showed ingenuity in the search for replacements for ore money. An interesting example is the "shell money system" that operated in Massachusetts in the 17th century. In 1641, shells were recognized there as legal tender. Settlers bought shells from the Indians (who were somehow the central bank) in exchange for beaver skins (they played the role of a reserve currency). The exchangeability of the skins and shells sustained the buying power of the shells. However, as a result of increasing difficulties in capturing beaver skins, the shell system ceased to exist. 3. In Lazio (the cradle of ancient Rome), cattle were “the money” (Latin: pecus means cattle, hence the word "pecunia", meaning "money"). Also the Slavs used horned cattle for commercial activities. 4. Natural money, in any form (regardless of whether we talk about gold, cattle, skins or other goods by nature), had limitations from the point of view of economic needs. The most important was the limited access to it and a high dependence on the forces of nature, which are overcome by symbolic (paper) money.
What can be used instead of money?
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Not only gold
As history has shown, gold played the most important role as money. The United Kingdom was the first to apply a money system based on gold. The main principles of the gold standard system (the so‑called Gold Standard):
The domestic currency had a strictly defined gold parityparityparity, i.e. it was known how much gold it containedto containcontained.
Paper money was exchanged for gold at any request and without any restrictionsrestrictionrestrictions.
Gold could be freely transferred on an international scale (with the help of the so‑called automatic stabilizers of the gold currency, the balance of payment of individual countries was maintained).
The economic system based on the golden currency was destroyed by the first world war. During the Great Depression of the 1930s, all countries (except the United States, which suspended convertibilityconvertibilityconvertibility only on August 15, 1971) decided to move away from convertibility into gold. Convertibility to other currencies was also limited in scopelimited in scopelimited in scope. The global monetary system has broken into severalseveralseveral currency blocks. These negative phenomena deepened after the second world war.
To avoid effects similar to those of the first world war, in July 1944, a conference was held in Bretton Woods in the United States to determineto determinedetermine the principles of the post‑war monetary system. A so‑called the Bretton Woods system based on the US dollar and gold (the so‑called Dollar Standard) was established. The Bretton Woods system assumed the restorationrestorationrestoration of mutual convertibility of currencies according to fixed exchange rates. The International Monetary Fund (IMF) was to watch over this. The same year another important institution was created – the International Bank for Reconstruction and Development (IBRD) called the World Bank . At the beginning of the 1970s, the Bretton Woods system destabilized, which resulted in the transition of the IMF to a system of liquid exchange rates. In 1976, a decision was made to refrainto refrainto refrain from specifying currency parities in gold (the so‑called demonetarization of gold). The weakening position of the US dollar prompted the IMF to create its own settlement money - the special drawing rights.
In 1978, Western European countries created a separate settlement unit – ECU, valid until January 1, 1999, when the euro was created. The ECU was replaced by the euro in a ratio of 1 ECU = 1 EUR.
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Grafika przedstawia rozrzucone banknoty o nominale pięciuset euro. Na grafice zamieszczono następujące informacje: 1. ECU. European Monetary Unit, an abbreviation of the first letters of the European Currency Unit or a reference to the word écu, meaning an old French coin. A monetary unit in the European Monetary System used in 1979–1998. The ECU has never been money in circulation and has not taken any material form. It was used to facilitate settlements in international trade. It was a unit made up of a basket of currencies. 2. Special Drawing Rights – SDR. Monetary unit of the International Monetary Fund of non-cash nature. Initially, the value of the SDR unit had its equivalent in gold - hence the name "paper gold". Created to stabilize the currency system in 1967, but used since 1970. Since 1974, it has been designated on the basis of the so-called currency basket (i.e. currencies of several countries). The share of particular currencies in the "basket" depends on the weight of the currency in international financial transactions, for example in 2011– 2015 the "basket" included: US dollar 41.9%, euro 37.4%, Japanese yen 9.4%, British pound 11.3%. 3. Fixed exchange rate – pegged exchange rate. Associating the exchange rate of one country with another currency or with a currency basket. The fixed exchange rate is set by central governments or central banks and constant in longer periods. It specifies the so-called acceptable currency fluctuation corridor around the central rate (parity). If the surplus of the supply or demand for a given currency results in a higher than acceptable deviation of the exchange rate from the parity, the central bank intervenes. 4. Currency – monetary unit. Currency is the name of the money in force in a given country. This name is used primarily in the context of international exchange. Currency is then a way of account (or a measure of value) and a way of regulating payments, receivables and liabilities, in international transactions. In order for a monetary unit of a given country to become an international currency, it must be exchangeable for other currencies. The exchange rate informs about the exchange ratio between two currencies including domestic currency exchange rates. Currencies are traded on the markets. Rates are therefore set on a market basis. For official transactions and information purposes, central banks establish and announce domestic exchange rates, e.g. European Central Bank, National Bank of Poland. 5. The eurozone. The euro is the most tangible proof of European integration - around 340 million people use the same currency every day in 19 of the 28 EU member states. The countries that adopted euro as their currency, together form the so-called euro area or eurozone. The name “euro” was adopted at the meeting in Madrid in December 1995. The euro became the single European currency on January 1, 1999. The euro banknotes and coins were first introduced into circulation on January 1, 2002.
Grafika przedstawia rozrzucone banknoty o nominale pięciuset euro. Na grafice zamieszczono następujące informacje: 1. ECU. European Monetary Unit, an abbreviation of the first letters of the European Currency Unit or a reference to the word écu, meaning an old French coin. A monetary unit in the European Monetary System used in 1979–1998. The ECU has never been money in circulation and has not taken any material form. It was used to facilitate settlements in international trade. It was a unit made up of a basket of currencies. 2. Special Drawing Rights – SDR. Monetary unit of the International Monetary Fund of non-cash nature. Initially, the value of the SDR unit had its equivalent in gold - hence the name "paper gold". Created to stabilize the currency system in 1967, but used since 1970. Since 1974, it has been designated on the basis of the so-called currency basket (i.e. currencies of several countries). The share of particular currencies in the "basket" depends on the weight of the currency in international financial transactions, for example in 2011– 2015 the "basket" included: US dollar 41.9%, euro 37.4%, Japanese yen 9.4%, British pound 11.3%. 3. Fixed exchange rate – pegged exchange rate. Associating the exchange rate of one country with another currency or with a currency basket. The fixed exchange rate is set by central governments or central banks and constant in longer periods. It specifies the so-called acceptable currency fluctuation corridor around the central rate (parity). If the surplus of the supply or demand for a given currency results in a higher than acceptable deviation of the exchange rate from the parity, the central bank intervenes. 4. Currency – monetary unit. Currency is the name of the money in force in a given country. This name is used primarily in the context of international exchange. Currency is then a way of account (or a measure of value) and a way of regulating payments, receivables and liabilities, in international transactions. In order for a monetary unit of a given country to become an international currency, it must be exchangeable for other currencies. The exchange rate informs about the exchange ratio between two currencies including domestic currency exchange rates. Currencies are traded on the markets. Rates are therefore set on a market basis. For official transactions and information purposes, central banks establish and announce domestic exchange rates, e.g. European Central Bank, National Bank of Poland. 5. The eurozone. The euro is the most tangible proof of European integration - around 340 million people use the same currency every day in 19 of the 28 EU member states. The countries that adopted euro as their currency, together form the so-called euro area or eurozone. The name “euro” was adopted at the meeting in Madrid in December 1995. The euro became the single European currency on January 1, 1999. The euro banknotes and coins were first introduced into circulation on January 1, 2002.
Definitions connected with money
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Money plays a fundamental role in a market economy. In fulfilling its functions, the most important of which is the function of being a method of payment, it can not exist without universal trust in it as a functional instrument of practical action. The basis of this widespreadwidespreadwidespread trust is its unchanging functional usefulness. Thanks to its properties, fiduciary money (from fidus - trust), that is, money without support in material goods (e.g. gold) functioning as a universal, mediating liquid asset, provides broadly understood economic freedom. Money is the only measure for the precise expression of the prices of economic goods.
The usefulness of money is determined by the state of economy. Inflation is a significant destructive force. In order for money to be a convenient tool nowadays, it must be:
stable,
accepted in the global dimension,
giving the opportunity to make attractive investments,
the state (official) currency - there is no gold, therefore the state is the guarantor.
Economic changes in the modern world cause evolution of the form of money. Money does not have to have a material form today (banknotes or coins). There is also non‑cash money (called bank or scriptural money, because it is the object of bank records). The possibility of using electronic (virtual) money seems to be the basis for transactions in the economy of the near future.
Money fulfills many functions. It is:
a value meter – it is possible to express the value of other goods and services using money (you can compare the prices of goods),
means of circulation (trade exchange),
means of payment (means of regulating liabilitiesliabilitiesliabilities),
means of thesaurisation (accumulation) - in order to fulfill this function, it must have stable purchasing power,
global money – if it performs the above functions on the international market.
To fulfill these functions – money must have certain properties:
the supply must be limited (i.e. it should be secured by goods and services – the term “substantial money” is used);
it must be divisible into smaller units without loss of value,
durabledurabledurable – for example, banknotes of a lower denomination remain in circulation for approximately 9 months, of higher denominations - even up to 11 years,
In Poland, the monetary unit is the Polish zloty (symbol: PLN), since the denomination on January 1, 1995, we add „new”. This reform, defined as the „reform of the deletion of four zeros”, replaced 10,000 PLZ by 1 PLN.
Money is a basic element of the modern economy. Thanks to money, transactions can be more efficient and easy. It seems that money does not bring happiness, but it can certainly be said that the lack of money causes many complications and problems that make it difficult for us to achieve our life goals. Money must be treated as a means, a tool, and not as a value in itself. According to Robert Kyosaki, the author of many books on investing: „Money is not a goal. Money has no value. The value is in the dreams that money will help come trueto come truecome true”.
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Exercise 2
Ćwiczenie alternatywne: Listen to the abstract recording to review the material and new vocabulary. Then do the vocabulary exercise. Translate words to Polish: efficient; commonly; pattern; issue; availability; to contain; restriction; to interfere. If it's too difficult, use lesson's glossary.
Ćwiczenie alternatywne: Listen to the abstract recording to review the material and new vocabulary. Then do the vocabulary exercise. Translate words to Polish: efficient; commonly; pattern; issue; availability; to contain; restriction; to interfere. If it's too difficult, use lesson's glossary.
Listen to the abstract recording to review the material and new vocabulary. Then do the vocabulary exercise. Match the pairs: English and Polish words.
money, barter exchange, spoiling of the money, purchasing power, Gold Standard, Bretton Woods system, International Monetary Fund, International Bank for Reconstruction and Development, ECU, European Monetary System, Special Drawing Rights, fixed (pegged) exchange rate, currency, eurozone, denomination