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The Evolution of Money: From Barter to Modern Banking

Explore the history of money, from the barter economy to the development of modern banking systems. Learn about the different forms of money and the challenges faced throughout history. Discover the evolution of monetary standards and the impact of government intervention in the economy.

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The Evolution of Money: From Barter to Modern Banking

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  1. Chapter 11 Spring 2016

  2. The Evolution of Money • Barter Economy – A moneyless economy that relies on trade • Money – A substance that serves as a medium of exchange, a measure of value, and a store of value • Medium of Exchange – Something accepted by all parties as payment for goods and services • Measure of Value – A common denominator that can be used to express worth in terms that most individuals understand • Store of Value – The Property that allows purchasing power to be saved until needed • Commodity Money – Money that has an alternative use as an economic good, or commodity • Fiat Money – Money by government decree

  3. The Evolution of Money • Specie – Money in the form of coins made from silver or gold • Pesos in America – When George Washington became president the most common form of currency was the peso • Ben Franklin and Alexander Hamilton were put in charge to change this and came up with the dollar • Characteristics of Money • Portability – Easy to carry and transfer • Durability – Duh • Divisibility – Again…duh • Limited Availability – Wait for it……………Duh

  4. Early Banking and Monetary Standards • Monetary Standard – The mechanism designed to keep the money supply portable, durable, divisible and limited in supply • Article 1, Section 10…No State can make their own money • This was enforced until the Civil War • The Civil War was when the government started producing paper money • Problems with Currency • Each bank had their own money • Banks could print more money even if they didn’t have it • Counterfeiting

  5. Early Banking and Monetary Standards • The Greenback Standard – When the Federal Government started producing legal tender • Legal Tender – Fiat currency that must be accepted in payment for debts • 1862 – Legal Tender Act – Federal Government started making money known as “Greenbacks” • This becomes known as a national currency • A 10% tax was levied on all other currency • Gold and Silver Certificates – Legal Tender backed by its worth in Gold or Silver • Treasury Coin Notes – Could be exchanged for Gold or Silver • Gold Standard – The concept that all legal tender must not exceed the amount of gold we have as a nation

  6. Early Banking and Monetary Standards • Disadvantages of the Gold Standard • Gold stock may not grow fast enough • People may decide to cash in all their gold • Price of gold changes • Political Failure • Abandoning the Gold Standard • FDR during the Depression • Nixon in the 70’s

  7. The Development of Modern Banking • 1913 – Federal Reserve created – A central bank that can lend to other banks – Created by Woodrow Wilson • Issued Federal Reserve Notes • Banking during the Great Depression • Banks expanded too quickly • 10,000 of 25,000 banks failed • A “Run on the Bank” bankrupted many banks • FDR declared a national “Bank Holiday” • FDIC created – (Glass-Stegal Act) Federal Deposit Insurance • When created $2,500 was insured for every customer • Increased to $100,000 • Now it’s $250,000

  8. The Development of Modern Banking • Commercial Banks – Banks strictly for business and commerce • Time Deposits – Money cannot be removed for a certain amount of time • Checking Accounts – Also known as Demand Deposits • NOW (Negotiable Order of Withdrawal) accounts – A checking account that pays interest • Savings and Loans (S&L) – Banks that invest the majority of their funds into home mortgages • Credit Union – A nonprofit bank for only its members • Deregulation by Reagan– The removal or relaxation of government restrictions on business • Led to the Savings and Loans crisis in the 1980’s • Many S&L’s changed their name to avoid scandal (WAMU)

  9. The Development of Modern Banking • M1 = Cash, coin and demand deposits • M2 = M1 + Small Time Deposits + Savings Deposits • M3 = M2 + Large Time Deposits (No longer exists)

  10. All Content Created by DJ Cook

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