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The evolution of the development of forms and types of money has brought to the fore the question of their value, which can rightfully be considered the most difficult question of economic theory and the theory of money. It became especially complicated after credit money, which had no intrinsic value of its own, became the dominant form.

The value of full money was determined by the value of the commodity that played the role of money (see. Metal (high-grade) money). The full value of money ensured trust in them on the part of market entities, and they accepted them in all payments.

After the demonetization of gold, that is, after gold lost its monetary functions, a different situation arose.

Modern carriers of monetary functions have no intrinsic value, but they are accepted as payment for real values, that is, as real value. This is due to the fact that all types of modern money are debt obligations of certain subjects of the market economy (for example, banknotes and coins are debt obligations of the central bank, behind which the entire economy of the country stands, deposit money is the obligations of commercial banks, bills of exchange – of enterprises and other commercial structures).

Trust in credit money is supported by a number of factors:

  • the economic potential of issuers;
  • previous experience of market participants in the use of such money in economic circulation;
  • conducting by the state such economic and monetary policy that would exclude the emergence of inflationary expectations among market entities and a decrease in confidence in such money in the future;
  • the provision by the state of paper signs and coins with the status of legal tender, as a result of which the seller / lender cannot refuse to accept payments in this money (therefore, the concepts of “money” and “legal tender” should be distinguished, since the second concept is much narrower than the first and is only one of the varieties of money – in cash issued on behalf of the state);
  • the creation of a state system of insurance of bank deposits and a system of regulation and supervision of banking activities, which increases confidence in banks and deposits as bank money;
  • creation of a system of guarantees for bills of exchange and checks.

Ensuring confidence in credit (inferior) money gives it a specific form of value – purchasing power.

Purchasing power of money – this is the mass of goods and services that can be bought for a monetary unit.

The mass of goods that can be bought for a unit of money is determined by the level of their prices: the higher the prices, the less goods can be bought for a monetary unit, and vice versa. So, there is an inverse relationship between the value (purchasing power) of credit money and the level of prices for goods.

When investigating this issue, it must be borne in mind that the value of money can change under the influence of time. This is due to the mechanism of the formation of the value of money; features of the manifestation of money as money and money as capital. At the same time, it is necessary to understand that interest is the price of money as capital and to understand what the opportunity value of money is.

Post Author: Rachel Reinbauer

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