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The generation of money and their usage led to the great consequences. Money generation allowed to overcome the narrow bounds of mutual exchange of separate producers by means of goods and to create conditions for market generation in the operations of which many owners of different goods can take part. It provided the further development of production and improvement of its effectiveness.

The fact of money usage has a considerable importance because thanks to which appeared an opportunity to separate a nonrecurrent process of the goods’ mutual exchange (G-G) on two asynchronically implemented processes:

– the first consists of the good sale (G-M);

– the second consists of the required good purchase in another time and in another place (M-G).

Whereby the usage of money is not implied as a representative in the goods exchange processes. By contrast the money functioning obtains features of an independent process: the commodity producers can save money got from the realization of their goods till the moment of required good purchase. Hence the money savings appeared which could be used as for the goods purchasing and for money loaning and for debts repayment.

As a result of such processes the money flow acquired an independent meaning and separated from the goods flow.

The money functioning got more independence after the full-bodied money substitution which had their own cost onto the monetary units and after the following fixed gold content of the monetary units cancellation. After that the money appeared without their own intrinsic value what allowed to emit the monetary units according to the turnover necessities regardless the gold guarantee availability.

Thanks to cashless settlements generation including payments made on electronic devices the independence of money enhanced widely.

From the great antiquity we can follow the proofs that money performed three basic functions:

1) the standard of value;

2) the instrument of circulation;

3) the store of value.

The first money function is the function of value standard or in simple words of unified product worth measurer for sellers and buyers. In order to define the value of any good it should be compared with some quantity of money. However it must be borne in mind that money don’t make goods comparable because the last are the products of human labor and have homogeneous base of comparison – abstract labor.

The value of good expressed in money is the price of good. The price or monetary commodity form, ideal form with only an idea. Only the good with a relative form of value can have a price. Money do not have price, their cost couldn’t be defined by the money themselves. Instead of price money have a purchasing power expressed in an absolute quantity of goods which could be purchased on them.

After money invention people could find them usage only because they made one more great invention: all the goods could be compared to each other on the basis of their relative value and the value itself could be expressed by means of unified measurer – money. For the commodity-money operations different monetary units are used – tenge, dollars, marks, etc. These units measure and compare value of commodities. This function of accounting money is called standard of prices.

Money as a standard of value is homogeneous what is very important for counting and record keeping of implemented transactions. Expressing prices in dollars and cents people can compare and equalize the value of different goods immediately and freely.

If one good costs 20 tenge and the other 10 then the relative value of these goods is evident. Let’s say that our economy system doesn’t have a standard of value. In this case instead of definite price expression of each good in tenge we would form proportions of exchange of each good and service on each other good. For different goods and services the quantity of possible combinations is quite great and the good’s price determination becomes quite difficult.

Between money as a standard of value and money as a standard of prices the substantial differences exist. Money as a standard of value relates to all the other goods, it appears spontaneously, changes in accordance with the quantity of social labor spent on money commodity production. Money as a standard of prices is specified by the State and acts as fixed weighted quantity of metal changing with the cost of this metal.

Initially the weight content of the monetary unit coincided with the standard of prices what reflected in the names of some monetary units. Thus in past the English pounds sterling really and truly weighted one pound of silver. During the gold circulation the standard of prices supposed the monetary unit determination equal to the definite quantity of gold. In the USA in 1900 one dollar was equal to 1.50463 g. of pure gold but during the following devaluations of dollar the content of gold fell triply: in 1934 to 0.889 g., in December of 1971 to 0.818 g. and in February of1973 to 0.737 g. In the course of historical development the standard of prices separated from the weight content of monetary unit.

The Jamaican currency system introduced in 1976 till 1978 canceled an official price on gold and the gold parities as a result of which the official standard of prices became irrelevant. Gold was drove out of circulation by inconvertible credit money. At present time the official standard of prices changed on actual which forms spontaneously in the process of market exchange.

During the inconvertible credit money circulation the price confirms in the goods directly but not in gold. That’s why the price is the form of appearance of exchange ratio of the good to all the goods but not to the yellow metal specifically.

At present time paper money performs the function of standard of value without any gold guarantee but not less successfully then precious metals.

Money as an instrument of circulation. Money was born by trade and appeared as a technical mean which facilitates the goods’ exchange. Because without money only the direct exchange could be done when each of partner has a required good for another partner. But even there will be three people they can fail the deal if won’t use money. In other words money facilitate greatly the transition (or, as economists say, «circulation») of goods between the trade participants. Money serves as a universal language which helps sellers and buyers to come to agreement.

By the way that’s exactly why gold and silver became the main money commodities which contained the basis of the World’s leading countries’ monetary systems till the middle of the last century. These precious metals were admitted by the majority of nations all over the World as the most recognized monetary language which facilitated greatly as internal and international trade.

During the direct commodity exchange (G-G – good for good) the purchase and sale happened simultaneously in one place without any gaps. The commodity circulation (G1-M-G2) consists of two independent actions separated in time and place. Money plays the role of representative which allows to overpass the temporal and spatial gaps and to provide continuous process flow.

To money peculiarities as a mean of circulation first of all we can include the real money appearance in circulation and its evanescence in exchange. In this connection the token money – paper and credit – can perform the velocity function. Here the parallel countermotion of money and goods happens when money is tied to the goods movement. Historically this function generated token (paper) money.

The function of means of hoarding and savings. Money being the universal equivalent i.e. providing its owner the receipt of any good becomes a creation of social wealth. People feel an aspiration to save and reserve money. During the metal circulation this money function played the role of spontaneous regulator of the money turnover – spare money went to treasures and money shortage was filling up by them.

In the conditions of widened commodity reproduction the accumulation (saving and storing) of temporarily disposable monetary resources is a necessary condition of the capital turnover. The creation of money reserves flattens the inequalities and peculiarities of economic life. On a nationwide scale the gold reserve stock creation was required. In accordance with a demonetization of gold the amount of gold hoard gives evidence of the State’s richness and provides trust of residents and nonresidents to the national monetary unit.

Money can perform this function because it has «a perfect liquid- ity» of a nominal value.

Of course there is no use to save money in the countries with growing inflation because it devalues too fast. In consequence it looses its force of attraction in spite of high liquidity. If every day we can buy the lesser quantity of goods on dollar, ruble or tenge people wouldn’t like to save the value too long in a monetary form. There are known cases when in the conditions of hyperinflation the workers claim not for the monthly wages but for daily in order to spend their money before the prices will grow on the next day.

In those countries where the hyperinflation exists the national currency could be almost denied as a mean of hoarding and as a standard of value. In such circumstances an interesting situation appears: the national monetary units perform the functions of circulation and standard of prices but as a mean of hoarding the more stable foreign currency is used bought by the monetary assets holders.

The representative function interweaves and interlinks directly with the function of money as a mean of payment – payment of taxes, receipt and reimbursement of credit, payment of salaries, allowances, payment for utility services. Whereby a money circulation is not accompanied by a simultaneous goods transfer.

Initially this function was performed by the gold money and then by paper and credit. Historically the function of a mean of payment generated the credit money – a kind of token money. Money as a mean of payment has a specific scheme of transfer (G-UPI-G) which is not linked with the goods’ countermotion, i.e. money – urgent proof of indebtedness – money.

According to this scheme in the conditions of developed goods production the goods’ owners are linked to each other and a payment link opening will cause a range of payment failures: one tenge of the State debt will result 5-6 tenge of the other nonpayments.

In the conditions of a legal basis imperfection and an inflation growth in the middle of 90^th of the last century the crisis of nonpayments accrued. Thus in Kazakhstan in the beginning of 1995 the nonpayments amounted 368.2 billion tenge, in 1996 – 533.9 billion, in 1998 – 637.9 billion. From 1998 some decrease occurred – 518.9 billion tenge and on 01.12.2002 – 148.2 billion tenge what was the result of the economic situation stabilization.

The usage of money as a mean of payment was described in detail in «The Russian Truth» (the XI^th century): «Kunas are needed for payment of viras (penalties), debts and rezas (percents), obrok and render (for plough – ral and yard – smoke)». As the industrial society developed a mean of payment increasingly substituted a mean of circulation.

In the modem economic literature these two functions of money are usually united. It is hard to overshoot the significance of money as a mean of circulation because it allows avoiding a barter form of trade. An exchange of barter on a money trade separates the act of sales from the act of purchase.

If money exists the seller should find somebody who’d like to buy his good and then after money receipt he will buy everything that he’d like. An exchange of barter trade mechanism on a mechanism which uses money as a mean of circulation leads to a circulation cost improvement.

A money exchange demands rather less forces and time then barter. Decreasing the circulation costs money stimulates the development of specialization and trade. Money which performs well the function of a mean of circulation is gladly admitted by everyone. Money gives its owner some purchasing power which is very important advantage.

Money allows making a flexible chose of types and quantity of the purchased goods and either of places and time of shopping and the dealing partners. If some mean of circulation is used for the quite long time period thus its usage becomes stable and depends on the readiness and desire of population to use it.

These are some examples of money unacceptability. In 1970 the U.S. Treasury for two years issued the two dollar banknotes which were suspended from 1966. The Americans didn’t admit these banknotes. One of the reasons was that a two dollar banknote could be easily misrecognized as a one dollar. People obviously preferred the banknotes with a bigger nominal difference, for example between 1 and 5 dollars, but not 1 and 2. Besides many people found the two dollar banknotes unlucky.

In 1979 the U.S. Treasury tried to decrease the emission costs again by a one dollar coin issuing with an image of Susan B. Anthony. A great saving was planed because the coin’s service life is equal to 15 years in average, but the paper notes serve not more than 18 months. Either the U.S. Treasury supposed that the usage of one big coin is much more convenient then of some little. And again this effort was neglected by the population: first of all because this coin was similar to a quarter of a dollar coin by size and they could be easily misrecog- nised; secondly paper money is more preferable than coins.

The function of world money. It is a function of money used on the world market for international relations support. The world money performs three functions:

Of an international mean of purchase – money is used for the goods purchase and sale on the world money for cash;

Of an international mean of payment – money covers the international debts;

Of an international standby fund – money performs the role of an international mean of payment stock. The state gold reserve stock performs this function.

Historically the gold played role of the world money as an external account mean of control. The Paris agreement of 1867 declared only this metal. And such situation kept for quite a long time.

After the World War I^st some other national currencies of different countries joined the rank of world money – the US dollar, the British pound, the French franc. In 1922 it was formalized in legislation by the international agreement in Genoa when the British pound and the US dollar were announced as the equivalents of gold and introduced into the international circulation.

After the World War II^nd the leaders of the biggest states tried to avoid the mistakes which lead to the World crisis of 30^th. On July 1944 in Bretton Woods they created the system of stable exchange rates which was called a «Bretton Woods system».

The member governments of the International Monetary Fund which was created on the same international conference along with the International Bank for Reconstruction and Development fixed their currencies rates in dollars and gold, and the dollar from its side was linked to gold (35 dollars for 1 ounce of gold).

Thanks to the fact when for long years USA purchased and sold gold, i.e. created or destroyed dollars the price of gold became stable on the level of 35 dollars and almost eliminate the inflation. Dollar’s credibility and American economic monetary policy stability were incredible moreover the foreign exchange banks at any time could change their dollars on gold.

During the «Bretton Woods system» action the World economy and World trade quicksteped to new peaks. Simultaneously the inflation index kept steady state (about 3 %). Only slight deflections were observed in most of the countries. However this system was fraught with some danger. Because the industrial productivity in USA in 1969-1970 was lower than European and Japan, the American goods’ competiveness on the World market fell. The dollar exchange rate revaluation was unavoidable. To save the system of stable foreign exchange rates was impossible. The sharp floating because of instability in dollar led to the «flight of the dollar» and its following fall in exchange. The dollar stayed a leading currency. And on April, 1972 the «Common Market» Nations came to a decision to establish between themselves more narrow range limits of their currencies and for this purpose created a so called «monetary snake».

In order to decide the problem of an international liquidity the International Monetary Fund constituted the special drawing rights (SDR). Initially in 1970 for one SDR a fixed gold content was hardly as for US dollar – 0.888671 g of pure gold. On Decenber, 1971 one more attempt was tried in order to stabilize the foreign exchange rates. The US dollar was devalued in relation to gold: from 35 U.S. dollar an ounce to 38 U.S. dollar an ounce.

On February, 1973 the US dollar was devalued for the second time and an exchange market should be closed for several weeks. In this regard most of the countries came to the system of floating rates. However after two devaluations of the US dollar and the «floating» foreign exchange rates introduction from July 1^st 1974 the SDR unit value began to be determined on the basis of «currency basket:, i.e. the average weighted foreign exchange rate of the 16 leading capitalist countries the share of external trade of which constituted not less than 1 % of the world trade quantum.

From January 1^st, 1981 the quantity of currencies in the «currency basket» was decreased to five after what its content is subject to review every five years. However the countries of EES were not satisfied with the SDR system functioning and its close link with the US dollar.

From March 13^th, 1979 the European Monetary System began to function which consisted of 8 countries of the «Common Market» (Germany, France, Benelux, Italy, Ireland, Denmark). For the European Monetary System member countries a European Currency Unit ECU was introduced.

ECU is a paperless monetary unit in a type of account record in the member countries’ central banks. The value of ECU is determined on the basis of the average weighted exchange rate of these 12 governments. In order to determine a share ofthis or those currency in ECU the GNP (gross national products) of the member countries were matched.

A new stage of the West European integration development was the program of the currency and economic union creation which was established by Jacques Delors’s committee in April, 1989. Delors’s plan stipulated the creation of the Common Market, the EU competition motivation, the coordination of economy, budget and tax policies in order to control the inflation, to stabilize the prices and economy growth, the general government deficit minimisation and the cover methods improvement. On the basis of Delors’s plan to December, 1991 the Maastricht Treaty about the European Union was worked out which stipulated a stagewise formation of a currency economic union.

The first stage actually began in July, 1990 simultaniously with the total currency restrictions abolition regarding the capital flow to EU. The second started in January, 1994 with the beginning of the European Monetary Institute in Frankfurt on the Main consisting of the Central banks managing member countries. The purpose of the European Monetary Institute creation was the preparation for the European System of Central Banks organization and ECU banknote issue. The European Council laid on December, 1995 in Madrid confirmed the decision of the Common European Currency introduction from January, 1999 what became the third concluding stage.

The Council participants decided to refuse the name of «ECU» admitting EURO instead. As envisioned by the Council euro shouldn’t be a parallel national currency like it was ECU but it should become a single and common currency precisely for all the EU members which finally will replace marks, pounds and francs.

The technical transfer stipulated four stages. Till May, 1998 the European Union should decide what countries will constitute the monetary union. Australia, Belgium, Finland, France, Germany, Ireland, Luxembourg, Netherlands, Italy, Portugal and Spain were included into the first list. The Great Britain and the rest Scandinavian countries joint at the later stage. This group of the 11 above mentioned countries forms the market with the GDP of 6.5 billion USD and with the population more than 280 million people. For comparison: The US GDP is 6.955 billion USD with the population of 263 million people.

On the second stage which began on January 1^st, 1999 the fixed exchange rates were identified. The European Monetary Institute transformed into the European Central Bank. Beginning from the above date the monetary markets quote in euro which became the basic currency in the interbank payments. The correspondent banks chose their euro-clearing bank and set up the euro-accounts. The private individuals could hold euro for their bank accounts and make bank payments by means of this currency but still the banknotes and coins haven’t been issued for circulation.

On the third stage beginning from January 1^st, 2002 the euronotes and coins were put in circulation. Euro became the second lawful currency after the national as on streets as in shopping centers.

On the last stage six months ago the national currencies lost their lawfulness as a mean of payment but for some time banks exchanged them on euro. To July, 2002 euro become the only currency unit in the European Union. The emission and control of cash euro circulation were entrusted on the European Central Bank.

The function of world money is performed by the modern money but at limits. First of all nowadays it is not performed by all the money. For the second even those currencies (for example US dollars, euro, yens) which are actively used today in the international relations are not universal either and they don’t cover all the system of the World money circulation.

All the listed functions were fully performed by money in the condition of the gold standard, i.e. when the role of the total equivalent was played by gold. The suspension of gold standard led to the fact that money stopped to perform their two traditional functions (treasures and world money) which couldn’t be performed without gold in the quality of money. That’s why in the modem conditions the economic literature often indicates only three functions of money: standard of value, instrument of circulation and mean of payment though this is a debatable opinion.

A consideration must be given to that actually in performing by the modern money its functions the fundamental changes took place but it doesn’t mean that two of five functions do not exist at all.

The function of treasures forming actually transforms into the function of value store when money is considered as a special liquid asset which saves after the good sale and provides its owner with a purchasing power in future.

Reviewing the initial analysis results of the money functions we can determine their interaction and also pay attention that the function of instrument of circulation and payment should determine the level of the total monetary stock in the country and the function of saving is directly linked with the State monetary policy.

The basic requirement of the money functions performing is the stability of the money circulation whole system.

The comprehension questions

1. Name two basic theories of money origin in the World Economy.

2. What are the basic history stages of money development according to the evolutional theory?

3. List the money functions and elaborate the concepts.

4. The essence of money consists of three features, name them.