Money & Banking - PowerPoint PPT Presentation

Money & Banking

By: Professor Jermaine Whirl

For Students of East Georgia College

• Assets that people are generally willing to accept in exchange for goods and services or for payment of debts.
• Assets: Anything of value owned by a person or firm.

• Evolution of Money
• Simple economies began as bartering system in which they traded a good for a good.
• This system had major short comings, because the value of one good may not equate to the value of another good. Example (Chicken and a new wood chair).

• Commodity Money
• Fiat Money
• Checks
• Electronic Payment (Pay-Pal)
• E- Money (Debit Cards)
• Smart Card- Prepaid store of value card
• Questions: Are we headed for a cashless society?
• Are there any benefits of having a cashless society?
• Should we still make the Penny?

• Medium of Exchange:
• Money serves as a medium of exchange when sellers are willing to accept it in exchange for goods or services.
• Unit of Account:
• Creates a way of measuring the value of goods and services within the economy in terms of money.
• Store of Value:
• If you don't use all you accumulated dollars to buy goods and services today, you can hold the rest to use in the future. Money accumulated over time holds value.

Divisibility- means money can be divided into small increments that can be used in exchange for goods of varying values

Transportability- means that money can be easily moved from one location to another when such movement is needed to complete exchanges.

Non-Counterfeiting- means that money cannot be easily duplicated. A given item cannot function as a medium of exchange if everyone is able to "print up," "whip up," or "make up" a batch of money any time that they want.

• Commodity Money:
• Gold, Silver, Copper at times:
• Problems with this is that these items must be pure, the values of these things can change.
• Fiat Money:
• Money such as paper currency, that is authorized by a central bank of governmental body and that does not have to be exchanged by the central bank for gold or some other commodity money.

• Money Aggregates were created to track down where money is going, it's current circulation, and the current supply of money in the economy.
• Knowing this will enable policy makers to make sound judgments on the correct monetary policies to use to regulate the economy.

• M1: Narrowest Definition of Money:
• Currency, which includes all paper money and coins in "circulation" (meaning not held by banks or the government.
• The value of all checking accounts (Demand Accounts) at banks
• The value of Traveler's checks.
• Some facts:
• 80% of all purchase made in the US are through Checking Accounts
• 60% of US Currency is actually held outside the US.

• M2: A Broader Definition of Money
• M2 includes everything in M1
• Plus Savings Accounts
• Small-Denomination Time Deposits- such as CDs
• Balances in Money market Deposits
• & Non-Institutional money market accounts (or non-banking institution money market accounts)

• Large Denomination of time deposits & repurchase agreements
• Money Market Mutual Fund Shares (Institutional)
• Repurchase Agreements
• Eurodollars- US dollars deposited in foreign banks outside the US, or in foreign branches of US Banks.

• M3- has been discontinued by the Federal Reserve as of March 2006.
• http://www.federalreserve.gov/pubs/supplement/2008/08/table1_10.htm
• Large Denomination of time deposits are now published by the Board in the Flow of Funds Accounts

• No other body can print money besides the Federal Reserve System/ US Treasury (not congress, the president, or anyone else.
• Money can be created in the US two ways:
• Federal Reserve prints money (which can cause inflation)
• Or Lending of money from bank to bank
• The Money Supply itself, is only controlled by the Federal Reserve System!

• Managing Federal finances;
• Collecting taxes, duties and monies paid to and due to the U.S. and paying all bills of the U.S.;
• Currency and coinage;
• Managing Government accounts and the public debt;
• Supervising national banks and thrift institutions;
• Advising on domestic and international financial, monetary, economic, trade and tax policy;
• Enforcing Federal finance and tax laws;
• Investigating and prosecuting tax evaders, counterfeiters, and forgers.