Chapter 13 Money and the Banking System Section 1 Money

I. Functions of Money M oney is anything people commonly accepted in exchange for goods and services. 3 Functions: A medium of exchange A standard of value A store of value

1) A Medium of Exchange Any item that sellers accept as payment for goods and services 2) Standard of Value Money provides people with a way to measure the relative value of goods and services by comparing their prices In the U.S. the standard of value is expressed in dollars and cents

3) Store of Value Money can be saved for later use In order to be a store of value, money must: Be non-perishable Keep its value over time

II. Characteristics of Money 1) Durability Ability of money to be used over and over again. 2) Portability Ability to be carried from one place to another and transferred from one place to another

3) Divisibility Money’s ability to be divided into smaller units 4) Stability in Value Encourages saving & maintains money’s purchasing power 5) Acceptability People are willing to accept it for exchange for goods and services

III. Sources of Money’s Value The three types of money are A. Commodity Money An item that has a value of its own Ex. Gold, silver, tobacco in 1600’s

B. Representative Money An item that has value because it can be exchanged for something else Coupons S pecie ~ gold and silver C. Fiat Money Value is attached to money because a government says that it has value Ex. C urrency

IV. Forms of Money A. Coins and Paper Money Coins are made by the U.S. Mint, a bureau of the Department of the Treasury Paper money is printed by the Bureau of Engraving and Printing in Washington D.C.

B.Demand Deposits Checking accounts make up the largest part of the U.S. money supply Checking accounts are a fiat money C. Near Money Ex. Savings accounts and time deposits

Chapter 13 Money and the Banking System Section 2 History of Banking

The U. S. monetary and banking systems have gone through three main periods of development

I. Before the Civil War From the 1780’s to 1860 The battle over banking was part of a larger political battle over the role of government A. Conflicting Views of Banking Federalist~ in favor of a strong central government (Hamilton) Anti-Federalist ~ favored leaving most of the power in the states (Jefferson)

B. First Bank of the United States Established by Congress as a private business in 1791 and was given a 20 year charter Congress established a national coinage system in 1792 and made the dollar the official unit of currency Congressional opponents voted down the renewal of the charter in 1811

C. 2nd Bank of the United States Chartered in 1816: Critics raised the following concerns: Too much power to the wealthy who controlled it Restricted economic growth by failing to provide enough credit & currency for the needs of the nation Others claimed it issued too much credit

D. Dismantling the Bank The Bank came under serious attack when Andrew Jackson was elected president in 1828 He vetoed legislation that would extend banks charter for another 20 years State chartered banks tripled from

Issued their own currency Bills and coins varied from state to state Issued more credit with less restrictions Kept less gold and silver to back up notes Confidence in state banks dwindled State Chartered Banks

II. Civil War to World War I Federal Government created a dual banking system Made up of Federal and state chartered banks More uniform and stable Power of National bank increased while state decreased

Problems with the Civil War 2 different currencies Greenbacks or U.S. notes (North) Confederate (South) The South’s money was no good after war

National Banking Acts 1863 and1864 Gave federal government power to charter banks Required gold and silver reserves Single national currency 1873 Coinage Act 1900 G old Standard Act Paper money and coins carry the same value of a specified amount of gold

III. World War I to Present 1913 to present 1913 Federal Reserve Act- created “The Fed” the nations central bank WWI~ gave credit to finance the war Failed to control credit in 20’s No support in 30’s 1930’s Depression Brought on by panic

FDR and a “New Deal” 1932 FDR elected President Restores confidence in banking Banking Act of 1933 separated investments from savings, FDIC 1934 Gold Reserve Act eliminated the Gold Standard