Download The Monetary System

The Monetary System
Why Gold, Paper & Coins?
The Monetary System
QUESTION (in your notes):
Why is a dime smaller than a
penny or nickel?
The Monetary System
• Early trade was done through
Bartering = Exchanging
goods/services
• In ancient and even 100 years ago
people exchanged something other
than coins or paper money.
• Doctors as recently as 1900 accepted
chickens, pigs and other items in
exchange for medical care
The Monetary System
• Various forms of $ have been used
since about 2000 B.C.E. starting
with Gold.
• Money on its own has little value
– It exists only in the value of the
goods & services it represents
– It is strengthened when gold or silver
is used to “back” the money
The Monetary System
• Gold was used in ancient cultures
because it was rare and desirable
Coin from 670 BCE - ancient Turkey
First coin printed in the
Colonies in Boston - 1652
The Monetary System
• China was 1st to use paper money c. 1000 AD
• Sweden was the 1st western nation to use
paper money in 1661
• Around 1600 people stored their gold with
goldsmiths. They were given a paper receipt.
• This receipt was then used to make purchases
because the receipt was backed by gold
The Monetary System
• Today paper money is not redeemable in gold
– The Civil War, World War I and Great Depression
changed this.
Confederate $10 bill
The Monetary System
• Today the U.S. Federal Reserve controls money
– The U.S. Government is the biggest economic consumer
– Think of the Fed Reserve as an airplane regulating height
• 2 ways
– Fiscal policy
• Use of federal powers of taxes, borrowing & spending to
counteract ups and downs in the economy
– Federal Reserve System
• A network of 12 federal banks that regulate all U.S. banks
• It controls how much money is printed or taken out of
circulation
• Sets interest rates
The Monetary System
• FDIC = Federal Deposit Insurance Company
• It is a government agency that protects against
bank failure. Each account in an FDIC regulated
bank is covered up to $250,000.