Money and Banking Flashcards
A strong domestic financial sector serves what two functions?
- Financial intermediation between savers and borrowers
– Facilitating the transfer of financial claims amongst
economic agents
3 functions of money
unit of account
store of value
medium of exchange
Commodity money
money whose value comes from a commodity of which it is made
Examples of early money
In principle, many commodities could act as money
- cocoa beans
- Hard Cheese
- Salt
- Metals
- Rocks
- Cattle
Dentalium Shells
Indigenous peoples of the coast used shells gathered on the West Coast at Cape Flattery as a store of value and to
conduct some trades
Wampum
- Wampum shells were traded and valuable in eastern North America before Europeans arrived
- Lacking currency, wampum were legal tender in New England from 1637 to 1661
legal tender
- Used to settle debts and pay taxes
- This gives a government (through the court system) to legitimize certain monies.
Debasement
where the face value is greater that the value of the metal it contains
what is coin “sweating”
coins were placed in a bag and shaken. The bits of metal that had worn off the coins were recovered from the bottom of the bag
What is coin “shaving”
shaving off a small portion of a precious metal coin for profit. Over time, the precious metal clippings could be saved up and melted
When and where was gold first used for coins?
probably in Africa, but the Lydians (modern day Turkey) are commonly credited with the first denominated coins, sometime around 640 BC
What are the benefits and drawbacks of using gold as currency?
- Due to its intrinsic usefulness, and long-standing, worldwide use for currency, gold is seen as an excellent store of value
- it is scare, and isn’t the best medium of exchange
- its value is too high for small transactions
Subsidiary coins
-made of other metals, silver, bronze, copper, etc., (or paper certificates or bank deposits) are needed for most transactions.
- Under a gold standard, these are just “tokens” that represent an amount of gold.
Bimetallism
- This standard uses two metals, typically gold and silver
-The US was officially “bimetallic” from 1837 until the Civil War - it makes sense to only have the less valuable metal coined.
-The mint won’t exchange gold for silver, but markets wil
Function of banks
-financial intermediaries- making loans and accepting deposit
Card Money
- Early Money in Canada
- signed promised by colonial and military officials redeemable at some future date when specie arrived. This stayed in the colony