Money and Banking

1
Money and Banking
2
Drill 11/12

• What is money?

3

• How much is a dollar REALLY worth?
• A dollar? How about 20 years ago? How about in
  France?
• Is a dollar really worth anything?

4
What is money?

• MONEY
• Anything that serves as a medium of exchange, a
  unit of account and a store of value

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A medium of exchange

• Money needs to be able to be exchanged for other
  goods/ services.
• It needs to be WORTH something to a society

6
A Unit of Account

• A way to measure the value of different goods/
  services
• How much does a movie ticket cost?
• How much does a new car cost?
• How do you know this without looking it up?

7
A store of value

• Money must HOLD ITS VALUE if stored rather than
  used.
• If we dealt in commodities like wheat and olive
  oil they would go bad and therefore are not good
  things to base money on

8
There are three types of money

• Commodity Money
• Physical objects that have value that are also
  used as money
• Wheat, gold, silver the actual things.
• Representative Money
• Objects that have value because they can be
  exchanged for other things that have value

9
Representative Money
A united States Silver certificate The US
Government stopped redemption of them during the
1970s
10
Fiat Money

• AKA Legal Tender. Money that has value because
  it is backed by the government of a country.
• Current day money.

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Drill 11/13

• What three conditions must money meet to be
  considered money?

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• Anything that serves as a medium of exchange, a
  unit of account and a store of value

13
Money has specific characteristics

• Durability
• It can last a long time without losing its value
  or physical makeup
• Portability
• People need to be able to carry it with them
• Divisibility
• Easily divided denominations

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• Uniformity
• Units of money must be the same in terms of what
  they will buy
• Limited Supply
• How money retains its value
• Acceptability
• It needs to be accepted as currency by the society

15
The Value of money

• Read the BBC article on the value of the dollar
  versus the Euro.
• On your own sheet answer the following questions
• What Protectionism?
• What is Chinas reaction to the tariffs?
• How can weakening the dollar help close the trade
  deficit?
• How is the fear of terrorism affecting the
  dollar?

16
Drill 11/14

• What is the difference between M1 M2?
• Why must banks balance profit and security when
  making loans?

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Banking
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The beginning

• In 1791 The First Bank of the US was founded
• Issued REPRESENTATIVE MONEY backed by Gold and
  Silver
• Regulated state banks to make sure that they had
  enough gold/ silver deposits to cover demand if
  it should rise.

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The banks fail

• The First bank will fail, A second bank is
  created and its charter runs out.
• Between 1800 and the 1860s there was NO
  centralized banking system in the US.
• It was all run by the states with different
  currencies being issued and wildly different laws.

20
Lincoln Signs the National Banking Acts

• Between 1863 and 1864 The National Banking Acts
  gave the US the power to
• Charter Banks
• To require banks to hold gold and silver to meet
  demand
• The power to offer a single national currency

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The Gold Standard

• By the 1870s the nation had adopted the Gold
  Standard
• The nations money was now linked to the price of
  gold
• This stabilized the dollar and made people more
  confident in the system

22
The Federal Reserve System

• Founded in 1913 to regulate banks and the money
  supply
• Built to end the panics and recessions of the
  1800s
• THE GREAT DEPRESSION fat lot of good the Fed
  did.

23
The system ended in the 1930

• FDR outlawed the private ownership of gold,
  except for jewelry purchases.
• Meaning that the currency would go from being
  Representative to Fiat notes.
• Inherently worthless except for exchange.

24
After the depression

• We have the banking system we see today.
• Federal Deposit Insurance Corporation
• FDIC
• Government insures all deposits up to 100K

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Big-Banks and Small

• Answer questions 1-4 on page 264
• Read the Big Banks vs Small banks comparison on
  265
• Answer the questions in complete sentences