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

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

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

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

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

Fiat Money – money used by government decree (order)

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

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

Characteristics of Money Portability Durability Divisibility Limited Availability

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

Parmesan Cheese: Ancient Italy

Coins: Roman Empire

Cocoa Bean: Early Mexican and Central American Societies

Potlatch (Gift Giving): Native Americans

Fur Skins: Ancient Russia

Ensuba (Potato Masher): Ancient Cameroon

The Dollar: AMERICA!

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

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

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

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

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

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

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

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)

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

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

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

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

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

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

Other Depository Institutions Savings banks Credit Unions

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.

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

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.