Full-value money - what is it?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Many centuries ago, in order to obtain the necessary goods and sell those that are in abundance, people used the simplest method - barter, or an elementary exchange of goods. With the development of crafts, the improvement of agricultural and livestock processes, as well as the expansion of areas of movement, this method of payment became more and more inconvenient.

It was then that the first money appeared. They took root quite quickly, and soon the whole world used a different system of mutual exchange of goods: sale and purchase. Time passed, countries and currencies changed, payment systems evolved, full and half money, electronic payments and wallets appeared.

Definition of concept

Full-value money are banknotes, in which the purchasing power directly depends on the material from which they are made. Most often it is gold, silver, copper. For such banknotes, the face value indicated on the front side,necessarily coincides with the commodity market.

For example, a coin that weighs one gram of gold has a face value equal to the price of the same weight of this precious metal on the market. Otherwise, these means of payment cannot be considered as full-fledged money. Circulation and issuance has a number of its own features, advantages and disadvantages, discussed below.

Characteristics

As already indicated above, a prerequisite for such banknotes is the full compliance of the nominal value with the real one. For example, for a silver coin weighing one gram, you can buy exactly as many goods as that weight of this metal is worth. In addition, full-fledged money is an ingot of a precious material that can be used not for settlements, but for other purposes. For example, for remelting and further manufacturing of jewelry, household items or art, weapons, etc. History knows many cases of remelting money for various needs, both individually and in large quantities.

Special nature

Actually, real money is a commodity that can be bought, sold or exchanged. But the peculiarity of this property of these calculation tools is that they only accompany the appeal, but are not intended for direct consumption.

Of course, the precious metal itself can be used for other purposes, but then it is no longer considered as full-fledged money. This phenomenon determines a special commodity form that is not inherent in any otherpayment instruments.

Everything can depreciate

By definition, this payment instrument has a value that is sufficiently resistant to external factors. Despite the fact that gold mining has been going on day after day for many centuries in a row, this metal is not only not getting cheaper, but, on the contrary, its price is constantly growing all over the world. Silver, unfortunately, has lost its former value, but still remains among the precious metals. With the development of industry, copper became completely cheap. In history, there were also facts of depreciation of full-fledged money.

One of the examples was back in the 16th century, after the discovery of America. Ships loaded with gold and silver, taken by force from the local population, headed for Europe. Precious metals began to fall sharply and strongly in price, and coins, accordingly, to lose their value. But this process did not last long: the market rate was determined, and the situation stabilized. Money made of silver or copper has also lost significant value several times in its history.

Important Features

Full-value money is not only a payment instrument, but also the most important lever of state administration and regulation. With their appearance, a new function of the state is born - not only the introduction of certain coins or ingots into circulation, but also the adoption of the necessary legal acts to regulate the activities of all people who use such means of payment.

Thus, full-fledged money shows legal and informational features or, asthey say they have a “fiat nature” (from the word “decree”, “decree” - fiat). Thanks to this phenomenon, the principles of monetary policy are born, as well as the development of the law and legislative activity of the state.

Appearance and shapes

The forms of full-fledged money are not very diverse. Initially, ingots of gold and silver appeared in circulation. To designate their weight and the purity of the metal, the issuer minted this information on them. With such inscriptions, the ingot did not need to be reweighed, which greatly facilitated and accelerated the trading process. But the ingots had a significant drawback - they were bulky and inconvenient to use, had a high cost and made it impossible to pay for a small product or an insignificant service. Only selected members of society could have such money, while the rest continued to conduct their usual barter.

These problems were solved with the advent of coins, which, according to scientists, were first minted in a state called Lydia in Asia. A small piece of precious metal, minted in the form of a coin, served as a unit for measuring the cost of everyday products, services and works. Coins began to appear not only among the nobility, but also among the common people (peasants, artisans, ordinary soldiers, etc.).

Over the following centuries, these types of valuable money began to appear in all corners of the world. They were minted in the form of a circle, square, with embossed and even edges. In some Asian countries, for example, holes were made in them so that they could be strung on a rope and notlose along the way. On the front side, as a rule, the face value and the name of the currency or the place where it was minted were applied. But the variety of images on the reverse side is simply huge: mythical deities and plots, portraits of prominent figures in politics and art, representatives of flora and fauna, weapons, buildings, cities and much more.

However, this trend has continued today. Moreover, both states and individual cities, regions, kings and feudal lords could issue such banknotes. It was quite easy to pay anywhere in the world - gold is valued everywhere! And today, most people will definitely have a couple of coins in their wallets. True, they will be made of steel, brass, nickel and various inexpensive alloys.

Another interesting form is the classic banknotes that can be exchanged for gold. That is, these are paper bills that have the properties of full-fledged money, and the value of which is expressed in the equivalent of a precious metal. Such money was used at the beginning of the last century. Although they looked like simple papers, in fact their face value was confirmed by the country's gold reserves.

Interesting fact

Of course, the entry into circulation of a new type of gold products - banknotes in the form of ingots and coins, led to the emergence of a mass of people who want to illegally enrich themselves on this phenomenon. Fraudsters simply sawed off coins, and made new ones from the gold mined in this way. Accordingly, the mass decreased and was no longer equal to the face value. Ordinary people could not distinguish a fake, andweighing the coins every time you calculated was completely inconvenient.

To solve this problem, they came up with ribbed edges. The sawn-off coin now stood out significantly and immediately aroused suspicion, and it was not so easy to repeat the carving in artisanal conditions. Later, technologies appeared that made it possible to apply a variety of drawings and inscriptions, which further protected against fakes. Today, the value of coins is low, and there are not so many who want to fake them, but the tradition of carving has been preserved.

Main advantage

Full-fledged money had a very important property, from the point of view of their owners: with an excess in circulation, they could simply be set aside as a stock of precious metal (treasure). And then, if necessary, ingots or coins could be extracted by the owner and put back into circulation without losing their value (of course, with the exception of those cases when they depreciated due to unforeseen circumstances or events). This eliminated the need for complex regulation of savings funds and those needed for current needs.

Flaws

Along with all the advantages that allowed a long period of time to perform its main functions, full-fledged (real) money has a number of negative sides:

• Production of coins from precious metals (gold, silver) requires a fairly large amount of expensive material, the extraction of which is in itself a laborious and expensive process. Moreover, not allstates have reserves of these metals in their bowels and are forced to purchase them from other countries.
• As a result of use, full-fledged money wears out, wears out, loses its original weight, and hence its face value.
• The need for money can change over time depending on many factors. Sometimes there is a sharp increase, and then there can be an acute shortage of money in circulation. The reason for this is that the extraction of precious metals simply does not keep up with the needs of the market.

Transition background

Functions of full-fledged money made it possible to provide convenient trade around the world for quite a long time, but with the development of banking, credit relations and related processes, the entire payment system required changes.

Scientific and technological progress and population growth have caused a significant increase in the range of goods and services, as well as the need for them. Silver and gold were no longer enough to provide the market with the necessary amount of means of payment, and defective money replaced real money. Another prerequisite was that banknotes ceased to be a value in themselves, but were needed only as “intermediaries” in purchase and sale transactions and did not stay with one owner for a long time, exchanging for various available benefits.

Defective money

At the beginning of the last century, real banknotes began to be replaced by banknotes, which are made of paper, have practically nonominal value, confirmed by the "gold" equivalent, are subject to severe depreciation and cannot be used as a commodity. Such money is called inferior. At the same time, they also have a number of advantages: simplicity in emitting, which is not limited in any way in the physical sense, as well as ease of handling. Such means of payment were able to solve the problem with the lack of money in the market, but they also caused a number of other problems and consequences. Such as, for example, the need for exchange rate determination of the value of currencies of different states based on many variable factors.

Just papers?

In the last century, the concept of "paper money" appeared. Good money has a secured face value, inferior money does not, and paper money is issued by the state to cover a budget deficit or for other similar needs. That is, these means of payment are not only not supported by anything, but are also not consistent with the needs of the market.

At the time of their issue, they perform the functions assigned to them, and then depreciate, and together with the rest of the money of the same currency on the market. Thus, the fiat property of money is distorted and leads to negative consequences. It is thanks to this phenomenon that the definition of “paper” appeared, that is, meaningless, and not at all because they are made of such material.

Modern technologies

Progress has stepped far forward, and today both full and defective money are less and less popular. They were replaced by electroniccurrencies. Making purchases with a bank card or making payments without getting up from your chair is much more convenient and practical. Electronic money has, of course, its drawbacks, but the information and digital age makes its own adjustments and requires changes in the good old system of payments using coins and banknotes. True, even today many people prefer to keep their savings in the form of bank gold bars in order to protect them from depreciation, believing that the precious metal is still the most reliable means of payment and savings.