1.2.The evolution of money.

Economists say that the invention of money belongs in the same category as the great inventions of ancient times, such as the wheel and the inclined plane, but how did money develop? Early forms of money were often commodity money-money that had value because it was made of a substance that had value. Examples of commodity money are gold and silver coins. Gold coins were valuable because they could be used in exchange for other goods or services, but also because the gold itself was valued and had other uses. Commodity money gave way to the next stage-representative money.

Representative money is a certificate or token that can be exchanged for the underlying commodity. For example, instead of carrying the gold commodity money with you, the gold might have been kept in a bank vault and you might carry a paper certificate that represents-or was “backed”-by the gold in the vault. It was understood that the certificate could be redeemed for gold at any time. Also, the certificate was easier and safer to carry than the actual gold. Over time people grew to trust the paper certificates as much as the gold. Representative money led to the use of fiat money-the type used in modern economies today.

Fiat money is money that does not have intrinsic value and does not represent an asset in a vault somewhere. Its value comes from being declared “legal tender”-an acceptable form of payment-by the government of the issuing country. In this case, we accept the value of the money because the government says it has value and other people value it enough to accept it as payment. For example, I accept U.S. dollars as income because I’m confident I will be able to exchange the dollars for goods and services at local stores. Because I know others will accept it, I am comfortable accepting it. U.S. currency is fiat money. It is not a commodity with its own great value and it does not represent gold-or any other valuable commodity-held in a vault somewhere. It is valued because it is legal tender and people have faith in its use as money.

But now the e-money are becoming more and more popular. Plastic money is a term that is used predominantly in reference to the hard plastic cards we use everyday in place of actual bank notes. They can come in many different forms such as cash cards, credit cards, debit cards,pre-paid cash cards and store cards. Cash Cards - A card that will allow you to withdraw money directly fromyour bank via an Authorised Teller Machine (ATM) but it will not allow the holder to purchase anything directly with it. Credit Cards - Again this card will permit the card holder to withdraw cash from an ATM, and a credit card will allow the user to purchase goods and services directly, but unlike a Cash Card the money is basically a high interest loan to the card holder, although the card holder can avoid any interest charges by paying the balance off in full each month. Debit Cards - This type of card will directly debit money from your bankaccount, and can directly be used to purchase goods and services. While there is no official credit facility with debit cards per se, as it is linked to the bank account the limit is the limit of what is in the account, for instance if anoverdraft facility is available then the limit will be the extent of the overdraft. Pre-paid Cash Cards - As the name suggests the user will add credit to the card themselves, and will not exceed that amount. These are usually re-useable in that they can be 'topped up' however some cards, usually marketed as Gift Cards are not re-useable and once the credit has been spent they are disposed of. Store Cards - These are similar in concept to the Credit Card model, in that the idea is to purchase something in store and be billed for it at the end of the month. These cards can be charged at a very high interest rate and can are limited in the places they can be used, sometimes as far as only the store brand that issued it.The evolution of money is important to understand when exploring the financial,economic and political systems that drive monetary policies. Monetary

policies affect the economy, and the economy affects our personal investment outcomes. [2]

Part2. The role of e-money in modern economy and society.