What is Money?. "When it's a question of money, everybody is of the same religion." Voltaire. Functions of Money. Store of Value Medium of Exchange Unit of Account. Various Types of Money. Commodity Money Convertible Paper Fiat Money Demand Deposits Electronic Money. Commodity Money.
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"When it's a question of money, everybody is of the same religion." Voltaire
Lydian electrum coins
Spanish milled dollar
“Pieces of Eight”
Silver Thaler from
First produced in 1519
Silver “Liberty” Dollar, first US coin issued
Little more than storage of the commodity
“1000 cash” bill from the Ming dynasty in China.
Issued in 1374 by the Imperial Treasury.
1720 English Exchequer Bill. These bills were interest-bearing, however they could be used to pay taxes and could be redeemed at the Bank of England. Endorsements on the back indicate that they circulated among the general public as money.
1860 two-dollar note. Prior to 1914 most paper currency circulating in the US was issued by private banks
1935 one-dollar silver certificate. This note was issued by the US Treasury and was redeemable for a fixed amount of silver.
Invention of Fractional Reserve Banking
Bank exchanges banknotes for gold or silver coins (specie)
Bank keeps only a small portion of the specie as reserves and loans the rest out to earn interest
Banking system creates money by loaning, receiving deposits, and reloaning
Banks are susceptible to bank runs
“Continentals” were issued by the Continental Congress to finance the Revolutionary War. They were redeemable for gold, but only at a future date.
“Greenbacks” were issued by the US Treasury to finance the Civil War. They were not redeemable for gold.
Greenbacks could be used by the US government to pay its debts, but the government would not accept them as payment.
February 1923 100,000 mark note.
1665 request to pay £25 15s from an account held with Morris & Clayton, “Scriveners in Cornhill”.
Bank exchanges checkable deposits for fiat money
Bank keeps only a small portion of in the form of reserves and loans the rest out to earn interest
Checking Accounts ($100)