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Transcript
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.