Money as a Payment System

MONEY AS A PAYMENT SYSTEM 1. Explain the motives for asking for money The amount of money circulating in society is not fixed, sometimes there is a lot, sometimes there is a small amount. This does not happen without reason. One factor that can influence the amount of money in circulation is the demand for money. The demand for money can be defined as the total amount of money that society and companies want to hold. The desire of society or companies to hold money is based on several motives. This is based on Keynes' theory of money demand. Keynes argued that a person's demand for money is based on one of three motives for demanding money. The motives for demanding money consist of: transaction motive, precautionary motive and speculation motive. • Transaction motive: The motivation for people to hold money to make daily transaction activities easier. For example, Nana wants to buy a pencil at the ABC shop with cash. • Precautionary Motive: the motivation for people to hold money to prepare for undesirable or unexpected things. For example: paying for health insurance. • Speculation motive: the motivation for people to hold money to make a profit. For example, Mr Agung buys gold, he will sell the gold when the price of gold rises. The difference between the selling price and the buying price is the profit that Mr Agung hopes for. 2. Explain the role of BI as a payment system operator a. The importance of the payment system Currently, all sectors of society are developing very rapidly, this is due to increasingly rapid advances in information technology. One sector that has been positively impacted by the development of information technology is the trade sector. As technology develops, the value of transactions carried out by the public becomes greater with a high level of risk. To overcome this problem, of course you need a payment system that is efficient, fast and practical but still safe and low risk. b. BI's role as a payment system operator Bank Indonesia as the institution tasked with regulating and maintaining the payment system has the role of operator. To carry out its role as an operator, BI has created a payment system without having to deal directly, but instead is done digitally through an online connected system that is tailored to user needs. BI has created a technology-based payment system, namely BI-RTGS. The advantage of the BI-RTGS system is that it can carry out large amounts of non-cash transactions quickly, efficiently and safely. 3. Explain the responsibilities of BI-RTGS As technology develops, the value of transactions carried out by the public becomes greater. This makes people begin to realize the shortcomings of currency. They feel that it is less efficient if they have to make transactions using cash, apart from having to carry large amounts of cash, the risk that the money can be stolen, robbed or counterfeited is also large. To overcome this problem, it is very important to create a payment system that is more efficient, safe and smooth. Bank Indonesia as the institution tasked with regulating and maintaining the payment system created a system, namely BI-RTGS. With BI-RTGS, people can transfer large amounts of funds electronically quickly, safely and efficiently. As the party that organizes BI-RTGS, Bank Indonesia has responsibilities including: a) in implementing BI-RTGS, Bank Indonesia must implement it efficiently, quickly and reliably. b) Bank Indonesia must provide an explanation to participants regarding the financial risks of participating in the BI-RTGS system c) Bank Indonesia is responsible for ensuring participants' compliance with the provisions that have been determined, including in receiving audit reports related to the implementation of BIRTGS by participants. 4. Explain the history of the development of money The history of money begins with the barter system. In this barter system, people will exchange one item for another according to an agreement. As time progressed, this barter system was deemed less efficient because people at that time had difficulty calculating the exchange value between goods to reach a mutual agreement. To overcome this problem, humans began to create a medium of exchange called commodity money. Commodity money is an item that is generally accepted as a medium of exchange. At this time the history of money began to change, humans began to abandon the barter system, and began to use commodity money such as grain, salt, tobacco or other agricultural products as a means of payment. However, as time goes by, people feel that commodity money is no longer efficient because this money is not universally applicable, does not have a stable value, cannot be divided according to needs, and is not easy to carry everywhere because it is large and heavy. Then money evolved. Until 600 AD, the first medium of exchange in the form of coins was printed by King Lydia Alyattes from Türkiye. The money is made from electrum mixed with silver and gold and then stamped with pictures to indicate that the money was printed in that area. This event pioneered other regions to participate in printing Chinese money during the Tang dynasty, printing banknotes from mulberry bark. This paper money is called fiat money. China prefers to print banknotes rather than coins because its metal and gold supplies are very limited. Fiat money is money issued by the government as legal tender. As times progress, it is felt that fiat money has the weakness of being easily stolen and quite expensive to carry in large amounts. To overcome this problem, demand deposits were created. Demand deposits are money issued by commercial banks in the form of securities. For example checks and giro. 5. Explain the types of money values a. Understanding the Value of Money The value of money is the ability of money to be exchanged for a certain number of goods. b. Various values of money The value of money can be divided into three types, namely intrinsic value, nominal value and real value. • Intrinsic value: the value or price of the materials used to make money itself. For example, printing a note with a nominal value of Rp. 100,000.00 requires materials (and printing costs) of 7,000 rupiah per sheet. So the intrinsic value of the money is 7 thousand rupiah, not IDR 100,000.00. Another example is printing IDR 100 coins, the intrinsic value could be greater than IDR 100 because the aluminum used is worth more than IDR 100. • Nominal value: the value of money written or printed on currency. On a note it is written 100 rupiah, 1000 rupiah. So the nominal value of the money is 100 rupiah, 1000 rupiah. Even if both have the same printing materials and costs, the nominal value is still different. • Real value: value that can be measured by the amount of goods and services that can be exchanged for that money. If IDR 1,000.00 can be exchanged for one glass of tea, then it can be said that the real value of IDR 1,000.00 is a glass of tea. 6. Explain some of the functions of money The function of money can be classified into two, namely the original function and the derived function. The original function of money is as a medium of exchange and unit of account. Meanwhile, the function of money derivatives is as a standard or measure of postponed payments, a means of storing wealth, and a means of transferring wealth. • The function of money as a standard / measure of postponed payments: for this function, money is used to express the size of the debt. Money is used as general purchasing power which can be expressed in definite units and according to guidelines or measurements. For example: it would make more sense if we borrowed 10 million for 1 year rather than borrowing two goats. • Wealth storage tool: every human being tries not to spend all his income. The remaining income is saved at home or in the bank for future needs. In other words, people save some of their money for future needs or anticipate unexpected expenses. • Tool for transferring value/wealth: Money can function to transfer value. For example, Mrs. Nana was promoted by the company to become branch head in Makasar. Previously, Nana's mother lived in Jakarta, because she had to move to Makasar. So Nana's mother sold her house in Jakarta and bought a house in Makasar. According to him, it is impossible to physically move the house from Jakarta to Makasar. So the function of money is as a transfer of value. 7. Explain the two derivative functions of money If we have a lot of money, of course we can use it for many things. Starting from buying necessities, saving for future needs, investing to make a profit, or buying gold or property to accumulate wealth. This shows that money has many functions. If money is grouped, it has two functions, namely the original function and the derivative function. The original function of money is as a medium of exchange and unit of account. Meanwhile, the function of money derivatives is as a standard or measure of postponed payments, a means of storing wealth, and a means of transferring wealth. • Original function as a medium of exchange. An example of this function is when we buy a book, we will exchange our money to get a book. Or farmers will exchange their crops to get money, then the money from the harvest is used to buy a tractor. • The function of money as a unit of account: money is used to measure the value of an item. For example, the price of clothes is 100 thousand, the price of trousers is 80 thousand.