Characteristics of Money Flashcards
What is the definition of durability in the context of money?
Money must withstand wear and tear over time.
What are examples of physical forms of money designed to be long-lasting?
Metal coins and polymer banknotes.
When was the Roman denarius first introduced?
In the 3rd century BCE.
How long did the Roman denarius remain in circulation?
For centuries.
How do modern polymer banknotes compare to traditional paper-based currency in terms of durability?
Modern polymer banknotes exhibit far greater resistance to wear and tear.
What is a potential benefit of more durable money for governments?
Lowers government expenditure on currency production and replacement.
How does durable money impact everyday exchanges?
Reduces friction in everyday exchanges, supporting stable economic activity.
What do cryptocurrencies like Bitcoin exemplify in terms of durability?
Extreme durability.
Why are cryptocurrencies considered durable?
They are maintained on a decentralized blockchain ledger, theoretically impervious to physical degradation.
What does portability refer to in the context of money?
Portability refers to money’s ease of transport and transfer.
What were the historical forms of money before modern representations?
Historical forms of money included cumbersome commodities such as gold and silver.
What are the more efficient representations of money that evolved from commodities?
More efficient representations include paper currency and digital payment systems.
What drove the transition from commodity money to modern forms?
The transition was driven by the need to facilitate larger and more frequent transactions while minimizing transaction costs and inefficiencies.
How have digital advancements affected the liquidity of money?
Digital advancements have made money more liquid by reducing the reliance on physical cash.
What are some examples of modern payment methods that enhance portability?
Examples include mobile payments, cryptocurrencies, and near-instantaneous bank transfers.
What is one benefit of improved money portability for economic agents?
Improving financial inclusion and market participation.
What new vulnerabilities arise from reliance on electronic transactions?
Financial systems require stable internet and electricity infrastructure.
Why might electronic transactions be less viable in certain regions?
They may be less viable in underdeveloped or rural regions.
What does divisibility in money refer to?
The ability of money to be divided into smaller units to accommodate transactions of varying sizes.
What historical issue did commodity money, like gold and silver, face regarding divisibility?
It struggled with practical constraints, such as the need for precise weighing and assaying.
How did the transition to standardized coinage affect the divisibility of money?
It helped mitigate issues related to divisibility but did not eliminate them entirely.
How does modern fiat money address divisibility concerns?
Most fiat currencies are denominated in small fractional units, ensuring granularity in exchange.
What advantage does electronic money (e-money) provide for transactions?
It allows for more precise transactions, enabling transfers down to the smallest unit without requiring physical division.
True or False: Many retailers enforce minimum spending requirements for card payments.
True
Fill in the blank: Many retailers enforce minimum spending requirements for card payments due to _______.
fixed processing fees
What effect do minimum spending requirements have on the usability of money’s divisibility?
They effectively reduce the usable divisibility of money in such contexts.
What does uniformity in money refer to?
Each unit of money must be identical in terms of value and usability.
Why is uniformity important in trade?
It ensures that one £10 note is interchangeable with another, preventing discrepancies in trade.
What could happen without uniformity in money?
The value of money would be subject to fluctuations, leading to hesitance in accepting payments.
What historical example illustrates the importance of uniformity in the U.S.?
Prior to the Federal Reserve’s creation in 1913, different banks issued their own banknotes, leading to inconsistencies in value.
How has the significance of uniformity been reinforced in modern times?
Through regulation of money supply, standardized designs for banknotes, and technological advancements for authenticity.
What issue can dilute the uniformity of money?
The production of counterfeit notes.
Fill in the blank: Uniformity prevents discrepancies in _______.
[trade]
True or False: Uniformity in money allows for different values of banknotes.
False
What is one effect of counterfeit notes on the economy?
They create fake units that differ in quality, diluting the uniformity of money.
What is necessary for money to function as a medium of exchange?
Money must be widely accepted
Acceptability is a key characteristic of money, allowing it to facilitate transactions.
What role do legal tender laws play in currency acceptability?
They mandate that a particular currency must be accepted in payment of debts
Legal tender laws provide a legal framework that ensures the use of national currency.
What typically backs the currency mandated by legal tender laws?
State-backed currency
This backing ensures that the currency is recognized and accepted within a jurisdiction.
What can happen to the acceptability of national currency during hyperinflation?
It can dramatically erode
Trust in the state or its institutions may falter, affecting currency stability.
What helps reinforce the perceived stability and acceptability of a currency?
Reliable financial institutions
Trust in institutions can enhance confidence in the currency.
What is one of the primary challenges facing cryptocurrencies?
Regulatory uncertainty surrounding their use
Governments are still determining how to classify and regulate digital currencies.
How does the lack of clear regulatory frameworks affect cryptocurrencies?
It increases the risk associated with their use
This risk undermines the widespread acceptability of cryptocurrencies.
Fill in the blank: Money must be widely accepted to function as a _______.
medium of exchange
True or False: Legal tender laws create a uniform standard for transactions.
True
These laws ensure that a specific currency is used consistently across transactions.
What is the relationship between limited supply and money value?
For money to maintain its value, it must be limited in supply.
What does scarcity ensure regarding money?
Scarcity ensures that money maintains its purchasing power over time and prevents rampant inflation.
What do central banks control through monetary policy?
Central banks control fiat money supply through monetary policy.
What historical example illustrates the dangers of excessive money supply?
The Weimar Republic’s hyperinflation (1921–1923).
How do some digital currencies, like Bitcoin, differ from fiat money in terms of supply?
Some digital currencies operate under a fixed supply mechanism.
What is the cap of Bitcoin in terms of coin supply?
Bitcoin has a cap of 21 million coins.
What can excessive restriction on money supply cause?
Excessive restriction on money supply can stifle economic growth.
True or False: Central banks must carefully balance money supply.
True.
Fill in the blank: Central banks control fiat money supply through _______.
[monetary policy]
What does excessive money supply lead to in terms of currency value?
Excessive money supply can lead to rampant inflation, eroding the real value of the currency.
