Money & Banking

Week 1
Money
• Why do we need money?

• How was money created?

• What determines it’s value?

Barter System
https://www.youtube.com/watch?v=FuHQhGqZvY0

H:\Money & Banking\The Invention of Money and Currency.mp4

Barter to Commodity
• The first coins were minted in Lydia 650B.C.
• The Lydian Lion,,, Where do you think Lydia was??
Today’s Turkey
From Commodity Money to Fiat Money
• Precious metals, gold, silver and copper were
used for medium of exchange. COMMODITY
MONEY
• Around A.D.1500 banks started storing gold
and issuing paper certificates that can be
exchanged for gold. PAPER CURRENCY
• Today’s dollar is FIAT MONEY, has no value
apart from its use as money, to be exchanged
for goods.
History of the money
• 1914-1944 foreign exchange was based on gold
& silver. Dominant currency was the Sterling.

• 1944: Bretton Woods Agreement based on

gold-exchange standard of the USD @ USD 35
per oz.
Bretton Woods
Disintegration of Bretton Woods
Is the US dollar still backed by gold?
1971- Smithsonian Era
• Era of managed floating
• That's when the US Dollar began to float freely
in the foreign exchange market. The result of
this floatation was the creation of the dollar
reserve system made possible by Saudi Arabia.
The House of Saud agreed to take nothing but
dollars for oil, forcing the rest of the world to
hold dollars.
http://www.thedailybell.com/glossary/2359/House-of-Saud-Al-Saud/
1971-King Faisal, President Nixon & Mrs.Nixon,
Welcoming Ceremony, DC.
Timeline
Review
Post Fiat Money

• Cheques
• Electronics payments
• E-money
• Cryptocurrencies
BITCOIN Case
• Assessment 1
Functions of Money
Functions of Money

Answer 1.6- 1.7 in Groups, p. 48

Functions of Money

Make sure you know the functions of

money and explain each. Refer to pages 27-
29 in Chapter 2
Four functions of Money
• A. Medium of Exchange
• Medium of exchange describes the role of money as a generally accepted
payment for goods and services.
• B. Unit of Account
• Unit of account is the function of money in which money can be used to
measure value in an economy.
• C. Store of Value
• Money is a store of value in that it allows for the accumulation of wealth by
holding dollars or other assets that can be used to buy goods and services in the
future.
• D. Standard of Deferred Payment
• Money is considered a standard of deferred payment in that it facilitates
exchange over time.
Inflation
• In groups answer the below 3 questions:

• What is inflation?????

• Why are people afraid of inflation???

• What causes inflation??

Inflation
• Inflation is defined as a sustained increase in
the general level of prices for goods and
services. It is measured as an annual
percentage increase. As inflation rises, every
dollar you own buys a smaller percentage of a
good or service. 
Types of Inflation
• Creeping inflation
• Creeping or mild inflation is when prices rise 3% a
year or less. When prices rise 2% or less, it's actually
beneficial to economic growth.  it sparks increased 
demand as consumers decide to buy now before
prices rise in the future.  
• Walking inflation
• This type of strong, or pernicious, inflation is
between 3-10% a year. It is harmful to the economy
because it heats up economic growth too fast.
• Galloping inflation
• When inflation rises to ten percent or greater, it
wreaks absolute havoc on the economy. Money
loses value so fast that business and employee
income can't keep up with costs and prices.
Types of Inflation
• Hyperinflation
Hyperinflation
• Hyperinflation is when the prices skyrocket
more than 50% -- a month. It is fortunately very
rare. In fact, most examples of hyperinflation
have occurred when the government printed
money recklessly to pay for war. Examples of
hyperinflation include Germany in the 1920s,
Zimbabwe in the 2000s, and during the
American Civil War.