Money in the Modern World

The most difficult aspect of money to understand is its function as a unit of account. Money is difficult to define, because the value of anything changes with time and circumstances.

Sir Isaac Newton defined the pound sterling (Ј) in 1717 as 113 grains of pure gold. By the end of the nineteenth century the gold standard had spread around most of the trading world, with the result that there was a single world money. It was called by different names in indifferent countries, but all these supposedly different currencies were interconnected through their particular definition in terms of a quantity of gold.

The end of the gold standard began with the introduction of the agreement in 1946. This fixed the value of all world currencies relative to US dollar, which in turn was fixed to a specific value of gold (US $ 0.35/oz). However, in 1971 the US government finally refused to exchange US dollar for gold, and other countries soon followed. Governments printed as much paper money or coinage as they wanted, and the more that was printed, the less each unit of currency was worth.

The great advantage of the nineteenth-century gold standard was not just that it defined the unit of account, but that it operated through almost the entire world. A price in England was the same as a price in Australia or any other country.

Today we can determine price differences between countries by considering the exchange rate of the day.

The great advantage of having a single stable world money is that such money has very high information content. It tells people where to invest their time, energy and capital, all around the world, with much greater accuracy and predictability than would otherwise be possible.

Nowadays many specialists believe that within the next decade money, as we know it will probably cease to exist in technologically advanced countries. The familiar coins and notes will soon be replaced entirely by plastic money – plastic cards of various kinds. And the shops of the future will be linked directly to the network of banking computers. The shop-assistant will simply key in your bank account code number and the amount you have spent, and thank you politely.

Banks have invested huge amounts of money in new technology. Credit cards are issued by credit card companies such as Visa and MasterCard. These companies work closely with all the major banks. A credit card enables you to pay for goods or services immediately without cash or cheque. You are given free credit for an agreed period. At the end of this period you are charged high interest. Every credit card holder is given a credit limit.

Most banks provide their customers with banker’s cards. Using PIN (personal identification number) you can use this card to withdraw cash form the ATMs (Automated Teller Machines).

Some banks have already introduced “first generation” smart cards. A smart card contains a computer “chip”. It can do all the things other cards can do but it can also store and display each transaction. In the near future you may be using these cards for “home shopping”, satellite TV, telephone charges, and as passports and identity cards.

Exercise 13. Match a line in A with a line in B.

A

1. unit of account

2. bank account

3. value

4. grains

5. print

6. consider

7. cease

8. cash

9. withdraw

B

1. take into account

2. take out money from the bank

3. money in coin or notes

4. keeping one’s money at a bank

5. stop, come to an end

6. unit of counting

7. worth of smth.

8. tiny, hard pieces

9. make books, pictures, etc.

Exercise 14. Read the text and try to find out the meaning of the following words and word-combinations:

unit of account, value, grains, print, consider, cease, cash, withdraw, bank account.

Exercise 15. Speak about:

1. The state of the economy at the moment. Is it strong or is it in recession?

2. The current rate of inflation in the country. Has the government reduced company taxes or personal taxes lately? Has public expenditure risen or fallen recently?

3. New technology and money.