Must be able to withstand physical wear and tear.
People need to take money with them.
Easily divided into smaller portions. Spanish doubloonsDifferent denominations
Must be the same in what they will buy.
Money must be limited in supply.
Everyone must be able to exchange the objects that serve as money.
1. Commodity Money 2. Representative Money 3. Fiat Money
Objects that have value in themselves and that are also used as money
Objects that have value because the holder can exchange them for something else of value
Money that has value because the government has ordered that it is an acceptable means to pay debts
Chapter 10 section 2
Banking debate started as part of larger debate about role of government in new nation.
FEDERALIST Anti-FEDERALIST Strong central government. Led by Alexander Hamilton. National Bank Power in the hands of the states. Led by Thomas Jefferson. Decentralized banking system
Federalists successful, Bank of the United States set up by Congress in 20 year charter Helped bring order and stability to American banking.
Bank only functioned until Jefferson argued that it was not a power given to Congress by the Constitution. 1804
Banks issuing their own notes. Inflation and mistrust. /cities-printing-their-own-money/ /cities-printing-their-own-money/
Chartered by Congress in 1816 to end chaos Another 20 year charter Renewal vetoed by President Jackson in 1832
1. Bank runs and panics: widespread panic in which great numbers of people try to redeem their paper money. 2. Wildcat banks: banks with high rate of failure. 3. Fraud: banks collected gold / silver, issued notes, and fled. 4. Many different currencies.
8,000 banks issuing currency, no federal government currency.
1861 US Treasury issues its first paper currency. “greenbacks” South issues currency backed by cotton
The gold standard, a monetary system in which paper money and coins are equal to the value of a certain amount of gold, was adopted in the 1870s.
This is the nation’s central banking system. It serves as the nations central bank, it can lend to other banks in times of need. It is made up of member banks, that belong to the Federal Reserve System.
1933 Congress passed act to create Federal Deposit Insurance Corporation (FDIC), this is the government agency that insures customer deposits if a bank fails.
Chapter 10 section 3
The Money Supply: all the money available in the U.S. economy
M1 represents money that people can gain access to easily and immediately to pay for goods and services, liquidity. Currency Demand Deposits Other checkable deposits Traveler’s checks
Consists of all of M1 plus many other assets. M1 Savings deposits Small denomination time deposits Retail money market funds
Loans Based upon fractional reserve system, banks only have to hold a certain % of what we deposit. Mortgages A loan to buy real estate, usually in 15, 25, or 30 year increments. Simple and Compound Interest Interest is the price paid for the use of borrowed money. Principal is the amount of money borrowed. Simple paid on principal only, compound on principal and interest.