How_Money_Works_-_The_Facts_Visually_Explained

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MONEY BASICS

The evolution of money

How it works

In its simplest form, two parties to a barter transaction

agree on a price (such as a cow for wheat) and physically

hand over the goods at the agreed time. However, this

may not always be possible—for example, the wheat

might not be ready to harvest, so one party may accept

an IOU to be exchanged later for the physical goods.

Eventually these IOUs acquire their own value and the

IOU holder could exchange them for something else of

the same value as the original commodity (perhaps

apples instead of wheat). The IOUs are now performing

the same function as actual money.

C

o

m

pl

ex

tra

ding (^) w
ith
(^) IO
U
s
Trading in IOUs
IOUs can be exchanged
between different parties,
or for a variety of items
(not necessarily the one
first agreed on).
Money A universal
IOU that has an agreed
value in terms of
the goods it can be
exchanged for.
$
WHEAT
IOU
FIREWOOD
IOU
APPLES
IOU
COW
IOU
IOU

FENCE BUILDING

CLOTHES

IOU

US_014-015_Barter.indd 15 13/10/2016 16: