1. The Evolution of Money

2. Barter Economy
“”Mutual Coincidence of Wants

3. Functions of Money Medium of Exchange Measure of Value Store of Value
Accepted by ‘all’ in payment of goods and services
Measure of Value
Provides a way to compare the worth of one product to another
Store of Value
Can be saved until needed

4. Commodity Money Can be used to settle debts or consumed Musket Balls
Compressed
Tea Leaves
Gun Powder

5. FIAT MONEY
Money by Government Decree
Porpoise
Teeth
Wampum

6. PAPER MONEY Originated by 17th Century England Goldsmith
Became a safe place to store gold
Depositor receipts served as the first paper money
Goldsmiths issued more receipts than gold held in reserve causing a liquidity problem.

7. The First U.S. Paper Currency
Individuals and Banks began printing their own paper money
Backed by Gold or Silver (Commodity Money)
Continental Dollars were issued to finance the Revolutionary War
Not backed by Gold or Silver (Fiat Money
Printed by the Continental Congress

8. Backed by Gold Fiat Money
Continental Currency
Massachusetts State First US Currency

9. Specie
Most desirable form of money – Limited in supply

10. ORIGINS OF THE DOLLAR
George Washington commissions Benjamin Franklin and Alexander Hamilton to establish money supply
To eliminate the Peso from circulation
Pesos were used in Triangular Trade
Most Common Currency used in the U.S. in 1789

11. Rum
Silver Pesos
Molasses

12. Characteristics of Money
Portable
Durable
Divisible
Limited in Supply

13. MONETARY STANDARD
Tool or mechanism used to keep the money supply portable, durable, divisible and limited in supply
Article 1,Section 8 – gave Congress the power to coin money
Article 1, Section 10 – Prohibited states from coining money (did not prohibit state banks from issuing paper money)

14. State Banks Received charter from State Government
Issued paper currency that was backed by either gold or silver
More notes issued than could be backed with gold or silver
Each bank’s currency varied in size, color and denominations
1,600 banks with 10,000 kinds of paper money by the Civil War Era
Counterfeiting was widespread as a result

15. Civil War and the Greenback
Bonds to raise money for war was insufficient
Congress prints paper money - $60 million
Not backed by silver or gold
Declared legal tender – fiat currency
Must be accepted as payment for debts
Greenback – green ink to distinguish from state notes

16. GREENBACK #2
Legal Tender Act (1862)– Union government prints $150 million United States Notes

17. CONFEDERACY CURRENCY
To finance Civil War

18. National Currency Established
Lost confidence in Greenbacks
Congress created the National Banking System (NBS)
National Banks chartered by Congress
Required to purchase government bonds
Issued National Bank notes or national currency backed by U.S. Government Bonds
Uniform Appearance
State Banks join or pay 10% tax on their notes
Rigorous bank inspections

19. NATIONAL BANK NOTES National Currency
Eventually squeezed out all privately issued (state) bank notes from circulation.

20. 1863 Gold Certificates Backed by Gold – In Large denominations
Original Purpose – End of Day Balancing Transactions between Banks
In 1882 smaller denominations printed for public use

21. SILVER CERTIFICATES Introduced in 1886
Backed by Silver Dollars and Bullion (Too Bulky)
Placed on reserve with the U.S. Treasury
Increased demand and price for silver

22. Treasury Coin Notes Redeemable in both gold and silver Issued in 1890
Last paper currency until 1913
Law Repealed in 1893

23. The GOLD STANDARD 1900 Gold Standard Act
Made possible by huge discovery of gold
South Africa and Klondike region of Canada
$20.67 an ounce
All current notes could be redeemed for gold at the U.S. Treasury

24. The Gold Standard Advantages Disadvantages Security
Gave the impression that paper currency was limited to the amount of gold on deposit with the Treasury
Increase in stock of gold was insufficient to meet growing economy
More paper currency was printed than gold to back it up
Price of gold did not stay fixed at $20.67 an ounce

25. The Great Depression (1930)
People cash in dollars for gold
Gold felt safer
1934 – U.S. confiscated gold from private citizens and went off the Gold Standard

26. Inconvertible Fiat Money Standard
1934 – New Monetary Standard
Government controls quantity, composition and quality of money supply
National Currency and Treasury Coin Notes withdrawn from circulation in 1934
Federal Reserve Notes issued

27. Characteristics of Modern Money
Portable – lightweight and transferrable
-Cybercurrency, smart cards, electronic money
Transfer velocity/instantaneous transfer/low cost/reduced fees
Durable – Metal currency lasts 20 years/$1 bill lasts 18 mos.
Divisible – pennies, checks, cybermoney, etc.
Limited Availability - perception
Stable Value - questionnable

28. THE FEDERAL RESERVE SYSTEM
First Central Bank
Issued Federal Reserve Notes
Privately owned by banks who bought shares
Publicly controlled
President appoints Board of Governors and Chair

29. FDIC Federal Deposit Insurance Corporation
Created by Glass-Steagall Act/The Banking Act of 1933
Insure customer’s deposit in case of bank failure
Provide sense of security
Reduced runs on the banks