Money

1
Money Banking

• By Professor Jermaine Whirl
• For Students of East Georgia College

2
What is Money?

• 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.

3
Where did money come from?

• 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).

4
Evolution of Money

• 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?

5
Functions of Money

• 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.

6
Money Characteristics

• Durable- Money should last for an extended time.
  It shouldn't be easily decompose, deteriorate,
  degrade, or otherwise change form.
• 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.

7
What Can Serve as Money?

• 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.

8
Money Aggregates

• 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.

9
Money is the United States

• 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.

10
Money is the United States

• 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.

11
Money in the United States

• 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

12
Money Creation in the US

• 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!

13
Role of the US Treasury

• 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.