Money & Banking

1. Money & Banking By: Professor Jermaine Whirl For Students of East Georgia College

2. What is Money? • Assets that people are generally willing to accept in exchange for goods and services or for payment of debts. • Assets: Anything of value owned by a person or firm.

3. Where did money come from? • Evolution of Money • Simple economies began as bartering system in which they traded a good for a good. • This system had major short comings, because the value of one good may not equate to the value of another good. Example (Chicken and a new wood chair).

4. Evolution of Money • Commodity Money • Fiat Money • Checks • Electronic Payment (Pay-Pal) • E- Money (Debit Cards) • Smart Card- Prepaid store of value card • Questions: Are we headed for a cashless society? • Are there any benefits of having a cashless society? • Should we still make the Penny?

5. Functions of Money • Medium of Exchange: • Money serves as a medium of exchange when sellers are willing to accept it in exchange for goods or services. • Unit of Account: • Creates a way of measuring the value of goods and services within the economy in terms of money. • Store of Value: • If you don't use all you accumulated dollars to buy goods and services today, you can hold the rest to use in the future. Money accumulated over time holds value.

6. Durable- Money should last for an extended time. It shouldn't be easily decompose, deteriorate, degrade, or otherwise change form. Divisibility- means money can be divided into small increments that can be used in exchange for goods of varying values Transportability- means that money can be easily moved from one location to another when such movement is needed to complete exchanges. Non-Counterfeiting- means that money cannot be easily duplicated. A given item cannot function as a medium of exchange if everyone is able to "print up," "whip up," or "make up" a batch of money any time that they want. Money Characteristics

7. What Can Serve as Money? • Commodity Money: • Gold, Silver, Copper at times: • Problems with this is that these items must be pure, the values of these things can change. • Fiat Money: • Money such as paper currency, that is authorized by a central bank of governmental body and that does not have to be exchanged by the central bank for gold or some other commodity money.

8. Money Aggregates • Money Aggregates were created to track down where money is going, it's current circulation, and the current supply of money in the economy. • Knowing this will enable policy makers to make sound judgments on the correct monetary policies to use to regulate the economy.

9. Money is the United States • M1: Narrowest Definition of Money: • Currency, which includes all paper money and coins in "circulation" (meaning not held by banks or the government. • The value of all checking accounts (Demand Accounts) at banks • The value of Traveler's checks. • Some facts: • 80% of all purchase made in the US are through Checking Accounts • 60% of US Currency is actually held outside the US.

10. Money is the United States • M2: A Broader Definition of Money • M2 includes everything in M1 • Plus Savings Accounts • Small-Denomination Time Deposits- such as CDs • Balances in Money market Deposits • & Non-Institutional money market accounts (or non-banking institution money market accounts) • Large Denomination of time deposits & repurchase agreements • Money Market Mutual Fund Shares (Institutional) • Repurchase Agreements • Eurodollars- US dollars deposited in foreign banks outside the US, or in foreign branches of US Banks.

11. Money in the United States • M3- has been discontinued by the Federal Reserve as of March 2006. • http://www.federalreserve.gov/pubs/supplement/2008/08/table1_10.htm • Large Denomination of time deposits are now published by the Board in the Flow of Funds Accounts

12. Money Creation in the US • No other body can print money besides the Federal Reserve System/ US Treasury (not congress, the president, or anyone else. • Money can be created in the US two ways: • Federal Reserve prints money (which can cause inflation) • Or Lending of money from bank to bank • The Money Supply itself, is only controlled by the Federal Reserve System!

13. Role of the US Treasury • Managing Federal finances; • Collecting taxes, duties and monies paid to and due to the U.S. and paying all bills of the U.S.; • Currency and coinage; • Managing Government accounts and the public debt; • Supervising national banks and thrift institutions; • Advising on domestic and international financial, monetary, economic, trade and tax policy; • Enforcing Federal finance and tax laws; • Investigating and prosecuting tax evaders, counterfeiters, and forgers.