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Chapter 11 Money & Banking

Chapter 11 Money & Banking. From cattle to the dollar. Cattle A nimal skins, including deer and elk bucks Tobacco Wampum- white conch and black mussel shells. Functions of Money. Medium of Exchange Salary comes from Latin term “ salarium ” Romans got paid in salt Measure of Value

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Chapter 11 Money & Banking

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  1. Chapter 11Money & Banking

  2. From cattle to the dollar • Cattle • Animal skins, including deer and elk bucks • Tobacco • Wampum- white conch and black mussel shells

  3. Functions of Money • Medium of Exchange • Salary comes from Latin term “salarium” • Romans got paid in salt • Measure of Value • Store of Value

  4. Money in early societies • China= Tea leaves compressed into “bricks” • Russia= compressed cheese • East African Masai= miniature iron spears fastened together to form a necklace

  5. Money • Commodity money- money that has an alternative use as an economic good or commodity • Flat money- money by government decree

  6. Characteristics of Money • Portability- easily transferrable • Durability • Divisibility into smaller units • Limited Availability

  7. Early Banking • 1811 state banks became popular • Each bank issued their own currency as long as it was backed with gold and silver reserves • By the Civil War, the US had more than 1600 banks issuing more than 10,000 kinds of money • Different currency for each bank • Temptation to issue too many notes • Counterfeiting

  8. The Greenback Standard • 1862 Congress passed the Legal Tender Act • Print $150 million US notes • Help support the Civil War • Greenbacks • National Currency • Gold certificates • Silver certificates • Treasury coin notes

  9. Gold Standard • 1900 Congress passed the Gold Standard Act • Price of gold was $20.67 an ounce • Money could be exchanged for gold • Ended during the Depression in the 1930’s

  10. Gold Standard • Advantages • Security • Prevents the govt. from printing too much money • Disadvantages • Gold stock may not grow fast enough to support a growing economy • Everyone can convert to gold, depleting the stock • Gold prices are variable • Risk of failure

  11. Modern Banking • 1863 Congress passed the National Banking Act • 1913 Congress created the Federal Reserve System • Federal reserve notes • FDIC & NCUA p.301

  12. Other Depository Institutions • Demand Deposit Accts (checking accounts) • Mutual Savings Banks • Savings and Loan Associations • Credit Unions

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