Evolution of Money Quiz

Meaning of Money

• Money is defined as anything that is generally accepted as a medium of exchange or in the repayment of debts.
• Money performs four specific functions:
  • Medium of Exchange: enables the purchase of goods and services.
  • Store of Value: allows people to hold value for future spending.
  • Unit of Account: measures the value of goods and services.
  • Standard of Deferred Payment: enables future contractual payments.

Characteristics of Money

• Durable: withstands repeated use.
• Easily divisible: can be divided into smaller units.
• Comparatively scarce: requires effort to procure.
• Homogeneous: each unit is identical.
• Convenient: easy to carry and use.

Measuring Money Supply

• Money supply is the total amount of money in an economy.
• Three measures of money supply:
  • M1 (Narrow Money): coins, paper money, and demand deposits.
  • M2 (Near Money): M1 plus near money (savings accounts, fixed deposits, etc.).
  • M3 (Broad Money): M2 plus other liquid assets.

Evolution of the Payment System

• Barter System: direct exchange of goods and services without money.
• Limitations of Barter System:
  • Double Coincidence of Wants: finding a suitable trading partner.
  • Lack of a Standard Unit of Account: no common measure of value.
  • Difficulty in Making Change: indivisible goods.
  • Limited Scope: only suitable for small-scale economies.
  • Inefficiency: time-consuming and vulnerable to imbalances.

Organized Barter (Trading-Post Economies)

• A structured system to facilitate barter transactions.
• Features:
  • Barter Exchange or Platform: a central platform for trading.
  • Membership: participants must become members.
  • Listing of Goods and Services: a directory of available items.
  • Barter Credits: a system of credits earned and used for trading.
  • Trade Directory: a catalog of available goods and services.
  • Barter Coordinator or Broker: facilitates trades and manages credits.
  • Clearinghouse Function: ensures fairness and balance.
  • Rules and Regulations: governing the exchange.
  • Record Keeping: detailed records of transactions.

Evolution of Money

• Commodity Money: has intrinsic value (e.g., gold, silver).
• Characteristics:
  • Intrinsic Value: value comes from the commodity itself.
  • Durability: resistant to wear and tear.
  • Fungibility: each unit is interchangeable.
  • Limited Supply: supply is limited by the availability of the commodity.
  • Portability: can be divided and transported.
  • Store of Value: retains value over time.
• Fiat Money: has value due to government decree (e.g., coins, paper money).
• Characteristics:
  • No Intrinsic Value: value comes from government decree.
  • Can be easily transported.
  • Can be used for larger transactions.
• Bank Money: deposits held in banks and financial institutions.
• Characteristics:
  • Creation of Bank Money: through fractional reserve banking.
  • Types: demand deposits, savings deposits.
  • Can be used for transactions.
• Electronic Money: digital representation of value (e.g., e-wallets, prepaid cards).
• Characteristics:
  • Can be used for various transactions.
  • Security features: PIN codes, fingerprint/ facial recognition, 2FA.
  • Issued by financial institutions.
  • Can be used online and in-person.### Stored-Value Cards
• Widely accepted and can be used at various locations, including retail stores, restaurants, and ATMs
• Offer convenience and can be a useful budgeting tool for consumers
• Often used for gifting, travel, budget management, and other purposes
• Fees associated with stored-value cards can reduce their value over time, including initial purchase fees, reload fees, and inactivity fees

Electronic Cash

• Refers to electronic payment systems, digital wallets, and other cashless payment methods
• Popular in Malaysia, with digital wallet providers including Touch 'n Go eWallet, GrabPay, Boost, and BigPay
• Banking apps allow customers to perform electronic cash transactions, make payments, transfer money, and manage their accounts
• Contactless payments using debit or credit cards with NFC technology are gaining popularity
• QR code payments are widely used, allowing consumers to scan QR codes to make payments
• E-payments are used for public services, such as road tolls, parking, and local government payments
• Peer-to-peer transfers are facilitated through mobile wallets and banking apps
• Some electronic cash solutions can be used for cross-border transactions

Security and Regulation

• Security is a top priority for electronic cash systems in Malaysia
• Encryption, authentication, and two-factor authentication (2FA) are employed to protect users' financial information and transactions
• The Central Bank of Malaysia (Bank Negara Malaysia) regulates electronic cash systems, setting guidelines and standards to ensure their security and stability
• Rewards, cashback, and promotions are offered by e-cash providers to incentivize users

Evolution of Money

• Money supplies are measured by M1 (narrow money), M2 (near money), and M3 (broad money)
• M1 consists of currency, coins, and demand deposits
• M2 includes M1, fixed deposits, savings accounts, and negotiable certificates of deposit
• M3 includes M2, other banking institutions, and short-term money market investments
• The financial system continually introduces new financial instruments, requiring redefinition of money supply
• Different monetary aggregates are used as guides for monetary policy actions and setting monetary objectives

Functions of Money

• Medium of exchange: enables the exchange of goods and services
• Store of value: allows individuals to save wealth over time
• Unit of account: provides a standard unit of measurement for goods and services
• Standard of deferred payment: enables the delayed settlement of debts

Characteristics of Money

• Durability: resistant to wear and tear
• Portability: easy to transport and divide into smaller units
• Divisibility: can be divided into smaller units
• Uniformity: each unit is identical to another of the same type
• Limited supply: the supply of money is limited by the availability of the underlying commodity
• Acceptability: widely accepted as a medium of exchange

Barter System

• Direct exchange of goods and services without using money

• Requires a double coincidence of wants, where both parties have what the other wants

• Lacks a standard unit of account and store of value

• Inefficient and time-consuming

• Vulnerable to imbalances in supply and demand### Bank Money

• A critical component of the modern financial system, facilitating economic transactions and providing a liquid medium of exchange.

Evolution of Money

Electronic Money (E-Money)

• Exists in electronic form
• Can be used for various electronic transactions
• Regulated by the Central Bank of Malaysia (Bank Negara Malaysia)
• Types: prepaid cards, mobile wallets, electronic vouchers
• Issuers: financial institutions, such as banks and non-bank institutions (e.g. Touch 'n Go, GrabPay, Boost, BigPay)
• Security measures: PIN codes, fingerprint or facial recognition, two-factor authentication (2FA)

Debit Cards

• Enable users to purchase goods by electronically transferring funds directly from their bank accounts to a merchant’s banks
• Value depends on the bank account balance
• Examples in Malaysia: MyDebit CIMB, Maybank, RHB
• Can be used for: ATM cash withdrawals, point of sale (POS) purchases, online payments, bill payments, contactless payments using NFC technology

Stored-Value Cards

• Also known as prepaid cards or gift cards
• Preloaded with a specific amount of money
• Can be used to make purchases, pay for services, or withdraw cash up to the value stored on the card
• Key features and uses:
  • Prepaid value: not linked to a bank account or credit line
  • Types: gift cards, prepaid debit cards, transportation cards, phone cards, payroll cards
  • Reloadable vs. non-reloadable
  • Security features: enhanced security, report lost or stolen cards
  • Online and in-person transactions
  • Record-keeping: track spending
  • Expiration dates: may result in loss of unused balance

Electronic Cash (E-Cash)

• Involves electronic payment systems, digital wallets, and cashless payment methods
• Popular in Malaysia: digital wallets (e.g. Touch 'n Go eWallet, GrabPay, Boost, BigPay), mobile banking apps, online banking
• Contactless payments using debit or credit cards with embedded NFC technology
• QR code payments
• e-Payments for public services (e.g. road tolls, parking, local government payments)
• Peer-to-peer transfers
• Cross-border transactions
• Security measures: encryption, authentication, two-factor authentication (2FA)
• Regulation: Central Bank of Malaysia (Bank Negara Malaysia)

Electronics Checks

• Allow users to pay bills directly over the Internet without sending a paper check
• Process: user writes electronic check, sends to recipient, recipient verifies and sends to bank, bank transfers money

Moving Towards a Cashless Society

• Global trend, but pace varies by country
• Important to note the transition is accelerating in recent years