Banking and Money
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Money
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Anything that can be used as a medium of exchange, is a measure of value, and is a store of value.
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Two types of money
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Commodity money and Fiat money
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Commodity Money
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money that has an alternative use like gold or salt.
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Fiat money
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Money by government decree of value. (Coins, paper money, bank checks, bank cards)
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Money in Colonial America
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Commodity money and localized Fiat money then paper currency due to mercantilism.
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Specie
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coins in silver and gold
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What is US money originally based off of?
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The Peso
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Characteristics of Money
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1. Portable 2. Durable 3. Divisible 4. Scarce or limited
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Monetary standard
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mechanism designed to keep characteristics of money in place
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History of money
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Privately issued bank notes to greenbacks to national currency to federal reserve notes
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Privately issued bank notes
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From 1789 to 1860, the federal government made only coins and private banks provided paper money.
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State Banks
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chartered by state governments. issued their own currency printed at local print shops which could be exchanged for gold or silver
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Problems with privately issued bank notes
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1. Dishonest wildcat banks in remote areas printed large quantities that were difficult to exchange 2. Hundreds of different bills in circulation at once 3. too much money printed equals inflation 4. counter-fitting
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Greenbacks
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Money during the civil war which congress decided to print in order to raise funds for the war. It was declared legal tender without gold backing. Resulted in high inflation making citizens skeptical
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National Banking system
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Created national banks with a federal charter to issue national currency to raise confidence. In 1865 state and national banks were forced to join.
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Gold Certificates
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started in 1863; backed by fold
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Silver certificates
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started in 1878; backed by silver
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Treasury Coin Notes
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1890-1893; redeemable in gold or silver
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Advantages of the Gold Standard
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consumers more secure and confident and keeps money supply low to curb inflation
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Disadvantages of the Gold Standard
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Can hurt economic growth if not enough gold stock and a run on gold can drain government reserves and adds pressure to fix price of gold
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Coming off the gold standard
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During the great Depression the runs on gold caused bank failures; the emergency banking act required those holding gold certificates or gold to file disclosure; gold reserve act required gold and certificate holders to redeem with the treasury for national currency.
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Inconvertible Fiat Money Standard
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Money cannot be converted to gold or silver and the supply in quantity, quality and composition is managed by the government.
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Federal Reserve notes
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Creation of the Federal Reserve bank in the 1930's gave the institution the ability to print all paper money and manage the money supply.
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History of Banking
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Bank of the United States created during Washington administration, 2nd national bank by Henry Clay, National banking during 1865, federal reserve 1913
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Federal Reserve
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first true central bank with the ability to lend to other banks, all nationally and state chartered banks are requited to join (by purchasing shares of stock), public control (president appoints the board of Governors as well as the chairman of the fed who serves a 14 year term
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Current Chairman of the Fed
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Ben Bernacke
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Banks during the Great Depression
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Oversupply of banks and oversupply of credit led to bank failures which led to \"runs on the bank\" which led to more bank failures; this is why FDR ordered the national bank holiday
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Glass Steagall Act
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Created the Federal Deposit Insurance Corporation (FDIC) to insure deposits. Originally insure up to 2, 500 dollars but is now normally up to 100,000 dollars and will be at 250, 000 until 2013
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Types of Depository
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Commercial Banks, Mutual Saving Banks, Savings and Loan Institutions, Credit Unions
