Post on 30-Dec-2015
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Chapter 11Money & Banking
From cattle to the dollar
Cattle Animal 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 Store of Value
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
Money
Commodity money- money that has an alternative use as an economic good or commodity
Flat money- money by government decree
Characteristics of Money
Portability- easily transferrable Durability Divisibility into smaller units Limited Availability
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
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
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
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
Modern Banking
1863 Congress passed the National Banking Act
1913 Congress created the Federal Reserve System Federal reserve notes FDIC & NCUA
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Other Depository Institutions
Demand Deposit Accts (checking accounts)
Mutual Savings Banks Savings and Loan Associations Credit Unions