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.
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