Money: Introduction Xu Hu Texas A&M University

Currencies around the world ! Chinese Yuan US dollar Japanese Yen British Pound Indian Rupee ??????

One observation of the use of money Selling a used laptop on eBay Some Buyer on the Internet Pay via deposit transfer Brian An increase in the Brian s checking account balance Withdraw some cash (green papers) from his checking account Buy a Mac

Whats the nature of money? How money comes into the existence? (The origins of money) What kinds of function money plays?

Shell Shang Dynasty BC Bu and Dao Chun Qiu, Zhan Guo 770 – 221 BC Farm Tools : Spade, Knife Coins made by copper Jiao zi Song Dynasty 960–1279 AD Coins made by silver

Money: Functions medium of exchange we use it to buy stuff store of value transfers purchasing power from the present to the future unit of account the common unit by which everyone measures prices and values

Medium of Exchange Justin Michael Brian Imagine a barter economy without medium of exchange, i.e., an economy in which there is no one commodity universally acceptable and people accept this commodity as payment not because they will consume the commodity and derive some utility from it but because they can use it to purchase something else. beer corn fish

Double Coincidence of Wants Justin Michael Brian Beer corn fish Coin Corn Coin Fish Coin Beer

Brian Justin Michael MonTue Wed

Brian Justin Michael MonTueWed Redeem or (Repay) Bill of Exchange

Store of Value This function can justify the use of precious metals as money. Some precious metal is used for saving, store of value, while it may NOT be used as a medium of exchange. Why use money to store the value? There are some other ways to save.

Unit of account If some commodity is used as a unit of account, it does not have to enter the transaction. BrianJustin = ?

Money: Types 1. fiat money (Legal Tender law) – has no intrinsic value – example: the paper currency we use 2. commodity money – has intrinsic value – examples: gold coins, cigarettes in P.O.W. camps

Discussion Question Which of these are money? a. Cash b. Checks c. Deposits in checking accounts (demand deposits) d. Credit cards

Fiat Money View money as a stock, i.e., asset. Why people will hold fiat money, since it does not yield interests?