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Section 1 The Evolution of Money

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1 Section 1 The Evolution of Money
Chapter 11 Section 1 The Evolution of Money

2 The Evolution of Money Before today’s currency, people practiced a barter economy – a moneyless system that relied on trade People traded fish, milk, shoes, anything valuable

3 The 3 Functions of Money 1. Medium of Exchange – something accepted as payment 2. Measure of Value – a common denominator that can be used to express worth 3. Store of Value –property that allows people to be saved until later

4 Money in Early Societies
*Money made life easier so people used whatever was scarce in their area*

5 Commodity Money – money that has an alternative use as a good or commodity (tea leaves, peppercorn)

6 Fiat Money – money used by government decree (order)

7 Money in Colonial America
Gunpowder, musket balls, and corn were used as commodity money

8 Money in Colonial America
Continental dollars were printed to finance the Revolutionary War Specie – money in the form of coins made from silver and gold

9 Characteristics of Money
Portability Durability Divisibility Limited Availability

10 CURRENCY TYPE: Limited Availability? Portable? Divisible? Durable? Culture of the Society 1. 2. 3. 4. 5. 6. 7.

11 Parmesan Cheese: Ancient Italy

12 Coins: Roman Empire

13 Cocoa Bean: Early Mexican and Central American Societies

14 Potlatch (Gift Giving): Native Americans

15 Fur Skins: Ancient Russia

16 Ensuba (Potato Masher): Ancient Cameroon

17 The Dollar: AMERICA!

18 Early Banking and Monetary Standards
Section 2: Early Banking and Monetary Standards

19 Monetary Standard The mechanism designed to keep the money portable, durable, divisible, and limited in supply

20 Currency in the United States
Continental Dollars Private Bank Notes Greenbacks National Bank Notes Gold & Silver Certificates Treasury Coin Notes Modern Federal Reserve Notes

21 Growth of State Banking
State Banks – banks that operate from state government At first, most state banks printed only the amount of currency they could reasonably back with their gold and silver reserves

22 Problems With Currency
Each bank issued its own form of money Banks could print more money whenever it wanted

23 The Greenback Standard
During the Civil War, Congress wanted to make one standard monetary unit United States Notes – a new federal fiat paper currency that had no gold or silver backing

24 Alexander Hamilton - Founder Thomas Jefferson – against it
National Currency To make sure greenbacks would not become worthless, the U.S. created a National Bank to keep things uniform Alexander Hamilton - Founder Thomas Jefferson – against it

25 The Gold Standard A monetary standard where the basic currency unit is equal to a specific amount of gold Advantages: people felt more secure prevented the government from printing too much money Disadvantages: gold stock might not grow fast enough (the price of gold might not change dramatically over time)

26 The Development of Modern Banking
Section 3: The Development of Modern Banking

27 Federal Reserve System – 1913, the nation’s first true central bank
Central Bank – a bank that can lend to other banks in times of need

28 The Federal Reserve System
For membership in the Fed, all national banks were required to become “members” (part owners) The Fed was organized as a corporation – hopeful members had to purchase shares of stock in the system



31 The Federal Reserve It is privately owned, but the Fed is publically controlled… The president appoints with congressional approval Federal Reserve Notes – paper currency issued by the Fed

32 The Great Depression During this time, banks did not have deposit insurance for their customers Customers rushed to withdraw their funds, called a run on the bank


34 Federal Deposit Insurance Corporation
FDIC –insures customer deposits in the event of a bank failure

35 Other Depository Institutions
Savings banks Credit Unions

36 Dealing with Failed Banks
Bank failures were also an issue in the 1980’s FDIC can seize the bank and either sell it to a stronger bank or liquidate it and pay off the depositors This worked for any bank – S&L’s, commercial banks, etc.

37 US Currency Timeline Create a timeline and label each of the different types of currency used in the United States. For each currency be sure to label: The time period it was used If it had any faults or problems If it was backed by any guarantee

38 Explain your answer in at least one PARAGRAPH.
As seen in the video clip, more and more societies are switching to electronic currency (credit cards). Consider the 4 characteristics needed for money to be successful. Do you think using electronic currency is a smart or risky idea? Why? What are the pros and cons to electronic currency? What does this tell us about our culture? Explain your answer in at least one PARAGRAPH.

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