Question

explain step by step how ceritificates of gold start to circulate as money in society

Answer 1

Development of Fiat money÷

Earlier, people used to carry lot of gold to the markets. While making purchase, buyer used to give the appropriate amount of gold. And if the seller was satisfied with the purity and weight of the gold, exchange was made.

But this system involved lot of transaction cost because, one it is too much work to carry so much gold and two, it was time consuming to verify the weight and purity.

So, government would have first intervened by minting standarized gold coins. And coins were easier to carry than gold bullion. Also, they had wide recognition.

Next, government started to accept gold in exchange for gold certificates. Now, since people believed that government will at any time redeem these gold certificates for gold, gold certificate gained equal value as that of gold.

Now, since these gold certificates are way more convenient to carry than gold, less and less people demanded gold and eventually no one carried gold at all. And goverment backed gold certificates became monetary standard.

Finally, gold certificates too became irrelevant because no one ever bothered to redeem them. And as long as people continued to accept paper bills in exchange for goods and services, they will have value and serve as money.