ECO 285 Money & Banking Basics II. Measurement. Liquidity – How fast, at full market value an asset can be converted into a means of payment. How? - Liquidity of financial assets. M1 = [Coins and] currency in circulation (C) + “transactions deposits” (D) + TC
Liquidity – How fast, at full market value an asset can be converted into a means of payment.
Cash – perfectly liquid
Diamond ring – not liquid
Money – only interested in financial assets
Reserves(Cash in vault)
Liabilities & Equity
Demand Deposits (Checking Accounts)
Accounting Identity: A L + E
Dollarization - Use another country’s currency as your medium of exchange.
$ - Ecuador, El Salvador, Timor, British Virgin Islands, Panama
€ - Vatican City, Monaco, Andorra
Currency board- the national currency is backed by an equal amount of a foreign currency.
$ - Hong Kong, Bermuda, East Caribbean $
€ - Bulgaria, Estonia, Lithuania
Currency union - A group of countries adopt a common currency. Euro/West Africa/Caribbean