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					 What is Money?
 "When it's a question of
money, everybody is of the
 same religion." Voltaire
         Functions of Money
   Store of Value
   Medium of Exchange
   Unit of Account
        Various Types of Money

   Commodity Money
   Convertible Paper
   Fiat Money
   Demand Deposits
   Electronic Money
          Commodity Money
   A good that has an alternative use
    beside that of being money
   It is accepted because the holder
    knows he can exchange it later
           Commodity Money
   Useful Characteristics of Commodity
    Money
    • Durable
    • Divisible or Maleable
    • Scarce
    • Easily Standardized
    • Easily Transported
    • Widely Accepted
           Commodity Money
   Examples of Commodity Money
    • Precious Metals (gold, silver, etc.)
    • Barley (ancient Mesopotamia)
    • Salt ()
    • Tobacco leaves (Colonial Virginia)
    • Cigarettes (prisons)
    • Wheat Flour (rural USA)
    • Large Stones (Isle of Yap)
Babylonian Ring-money
                Salt as Money
   Pliny the Elder stated as an aside in his Natural
    History's discussion of sea water, that "[I]n
    Rome. . .the soldier's pay was originally salt
    and the word salary derives from it. . ."
    Plinius Naturalis Historia XXXI.
Stone Coins from Yap
          Commodity Money
   Uniform weights are a useful in
    dealing with commodity monies
   The names of many currencies and
    measures of value derive from
    weight measures
      Commodity Money
• Talent – amount of weight a worker
  could be expected to carry on his back
  or about 60 lbs.
• Lira - Unit of currency originally issued
  by Charlemagne and based on a pound
  (libra) of silver.
• Pound Sterling - Saxon coin minted in
  775 with 240 sterlings weighing a pound.
  Originally large payments were made in
  "pounds of sterling."
Commodity Money - Coins




     Lydian electrum coins
Commodity Money - Coins




    Spanish milled dollar
      “Pieces of Eight”
Commodity Money - Coins




      Silver Thaler from
       St. Joachimsthal
       First produced in 1519
Commodity Money - Coins




     Silver “Liberty” Dollar,
        first US coin issued
           Convertible Paper
   Paper claim on some amount of a
    commodity money
   Can be converted on demand into
    gold or silver, for example
   More convenient for transport
   Indirect evidence of usage of “drafts”
    in Babylon, Egypt Greece & Rome.
           Convertible Paper
   Genoese bankers 12th & 13th
    centuries
    • The first [bills of exchange] for which
      definite evidence exists was a contract
      issued in Genoa in 1156 to enable two
      brothers who had borrowed 115
      Genoese pounds to reimburse the
      bank’s agents in Constantinople by
      paying them 460 bezants one month
      after their arrival.
Convertible Paper
         “1000 cash” bill from
            the Ming dynasty
                in China.

          Issued in 1374 by
              the Imperial
               Treasury.
              Convertible Paper




1720 English Exchequer Bill. These bills were interest-bearing,
  however they could be used to pay taxes and could be redeemed
  at the Bank of England. Endorsements on the back indicate that
  they circulated among the general public as money.
           Convertible Paper




1860 two-dollar note. Prior to 1914 most paper
  currency circulating in the US was issued by
  private banks
Convertible Paper
           Convertible Paper




1935 one-dollar silver certificate. This note was
  issued by the US Treasury and was redeemable
  for a fixed amount of silver.
              Fiat Money
   Money that circulates “by command”
   It is not explicitly backed by any
    commodity.
                   Fiat Money




“Continentals” were issued by the Continental Congress to
  finance the Revolutionary War. They were redeemable for
  gold, but only at a future date.
                   Fiat Money




“Greenbacks” were issued by the US Treasury to finance the
  Civil War. They were not redeemable for gold.
                   Fiat Money




Greenbacks could be used by the US government to pay its
  debts, but the government would not accept them as
  payment.
             Fiat Money




February 1923 100,000 mark note.
                 Fiat Money




Federal Reserve notes were first issued in 1914.
      Checkable Deposit Money
   Demand Deposit Accounts
   Other Checkable Deposits
    • NOW (Negotiable Order of Withdrawal)
    • Credit Union Share Drafts
   Checkable deposit usage expanded
    rapidly in the US after 1914 when it
    became illegal for US banks to issue
    private banknotes.
           Checkable Deposits




1665 request to pay £25 15s from an account held with Morris
  & Clayton, “Scriveners in Cornhill”.
               Other Monies
   Stored Value Cards
    • Smartcards (Hong Kong
      Octopus Card - 八達通 )
    • T-Money Card
      “Some stores including
      Lotte World, Kyobo
      Book Centre, GS 25 and
      others accept T-money
      as cash.”
   Electronic Money
    (PayPal)

				
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posted:7/16/2010
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