Fiat Money by liaoqinmei


With a partner, discuss: what is the
function (use) of each of the items
• Salt is one of the world's oldest forms of payment. In fact, the word
  salary derives from the Latin "salarium," which was the money paid
  to Roman soldiers to buy salt. It was the main form of currency in
  the Sahara Desert during the Middle Ages, and was used
  extensively throughout East Africa. Typically, one would lick a salt
  block to make sure it was real and break off pieces to make change.
  Doty's block, seen here, is 1,500 years old.
    Other incredible, edible currencies include "reng," a yarn-ball of
    tumeric spice wrapped in coconut fibers that is used for trade in the
    Solomon Islands; cacao (or chocolate beans), widely used
    throughout Mexico and Central America; and Parmigiano Reggiano
    cheese, so highly regarded that it was used both as currency and
    bank collateral in Italy.
    One particularly inedible currency: the poisonous money seeds of
    Burma. Which if nothing else proves that money does indeed grow
    on trees — or at least bushes.
             Think about it…
•   Are credit cards money?
•   Are debit cards money?
•   Are seashells money?
•   Is sand money?

A history of money
           What is money?
  What are money’s three functions?
   Can you trade without money?
 How are credit and money different?
What are the two major types of money?
            What is money?
Money is anything        Exchange (trade) can
 people accept as          happen without
 payment for goods         money.
 and services
  – Can be used to pay   Barter—direct
                          exchange of one
                          good/service for
Money has three           another
 functions:                – Waste of time in
  – Medium of exchange       transaction
  – Unit of account
  – Store of value
         Medium of Exchange
• Removes problem of       A medium of exchange
  barter, because            is anything widely
  everyone is willing to     accepted in exchange
  accept it as payment       for goods and services

• Increases trade by       • This is called being
  providing a more           fungible—
  convenient way to          interchangeable for a
  exchange                   valued good/service
          Unit of account
Unit of account—function of money that
  provides a common measurement of value
  for goods/services
• Allows us to compare the value of two
• Monetary units are what we call our
  money (US/Australia—dollar; El
  Salvador—colon, Japan—yen,
            Store of value
Store of value—the function of money to
  hold value over time
• This allows us to save our money and
  spend it in the future
• Does not mean that the value will remain
  constant (inflation)
    Other properties of money
• Money must be scarce, but not too scarce
• Should be portable—easy to carry
• Should be divisible—able to “make
• Must be uniform—easy to tell how much it
  is worth, look the same as other money of
  its type
 What stands behind U.S. money?
• Commodity money—anything that serves as money,
  has market value based on the material it’s made from
  (tangible value)
   – In other words, has value as money AND as a good
   – Should the penny be considered commodity money?
   – Used to be backed by gold/silver
• Fiat money—money accepted by law, not because of its
  tangible value
   – In other words, what the government says is acceptable for
   – Dollar bills
   – “THIS NOTE IS LEGAL TENDER…” means your paper money is
     fiat money

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