The Monetary SystemThe Monetary System

Why Gold, Paper & Coins?Why Gold, Paper & Coins?

The Monetary SystemThe Monetary System

QUESTION (in your notes): Why is a dime smaller than a

penny or nickel?

QUESTION (in your notes): Why is a dime smaller than a

penny or nickel?

The Monetary SystemThe 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

• 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 SystemThe 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

• 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 SystemThe Monetary System

• Gold was used in ancient cultures because it was rare and desirable

• Gold was used in ancient cultures because it was rare and desirable

Coin from 670 BCE - ancient Turkey

First coin printed in theColonies in Boston - 1652

The Monetary SystemThe 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

• 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 SystemThe Monetary System

• Today paper money is not redeemable in gold

– The Civil War, World War I and Great Depression changed this.

• Today paper money is not redeemable in gold

– The Civil War, World War I and Great Depression changed this.

Confederate $10 bill

The Monetary SystemThe 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

• 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 SystemThe 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.

• 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.