Money and Banking

http://www.youtube.com/watch?v=WCkOmcIl79s

Money and Banking

FUNCTIONS OF MONEY Medium of Exchange

Unit of Account

Store of Value

FUNCTIONS OF MONEY Medium of ExchangeAnything that is used to determine value during the exchange of goods and services

FUNCTIONS OF MONEY Unit of Accountcomparing the values of goods and servicesFUNCTIONS OF MONEY Store of ValueMoney keeps its value if you decide to hold onto it or spend it

PAPER MONEY All paper money regardless of issue date is still legal tender

7http://www.youtube.com/watch?v=Ll3uipTO-4A6 Characteristics of MoneyDurabilityPortabilityDivisibilityUniformityLimited SupplyAcceptabilityFederal Reserve Notes99% of our money Current Denominations: $1, $2, $5, $10, $20, $50, $100Before 1945: $500, $1,000, $5,000, $10,000July 14, 1969Denominations of $500 and larger were retiredTreasury seal & serial numbers are green

10United States NotesMake up less that 1% of currencySince 1969, only $10 denominations have been issued.Prior to 1969, $2 and $5 were issued.1966, $2 discontinued1968, $5 discontinuedTreasury seal and serial numbers are printed in red.11UNFIT MONEY

Average life of $1 bill is 17-18 monthsLarger denominations usually last longerOld, worn, torn, or soiled money is sent to the Federal Reserve Bank to be exchanged for new12Commodity MoneyObjects that have value in themselves

Representative MoneyObjects that have value because theycan be exchanged for something of value

Fiat MoneyGovernment decree oflegal tender not to berefused in settling debtsor making purchases

MONEY SUPPLYCurrencyToken MoneyFederal Reserve NotesIntrinsic ValueCheckable DepositsCommercial BanksThrift InstitutionsMoney is defined two ways

M1MONEY SUPPLYNear-monies or Savings DepositsMoney Market Deposit AccountsSmaller Time DepositsMoney Market Mutual Funds (MMMFs)

M2=M1 plus..Currency (coins & paper money) plus Checkable depositsequals M1 M1M2M3$11012000 Data(billions of dollars)MONEY SUPPLYM1M2M3$11012000 Data(billions of dollars)$4827MONEY SUPPLYCurrency (coins & paper money) plus Checkable depositsequals M1 plus Savings deposits, including MMDAs plus Small time deposits plus Money market mutual fund (MMMF) balances equals M2M1M2M3$11012000 Data(billions of dollars)$4827$6853MONEY SUPPLYCurrency (coins & paper money) plus Checkable depositsequals M1 plus Savings deposits, including MMDAs plus Small time deposits plus Money market mutual fund (MMMF) balances equals M2 plus Large time depositsequals M3 Currency (coins & paper money) plus Checkable depositsequals M1 plus Savings deposits, including MMDAs plus Small time deposits plus Money market mutual fund (MMMF) balances equals M2WHAT ABOUT CREDIT CARDS?

WHAT BACKS THE MONEY SUPPLY?Money as DebtValue of Money Acceptability Legal Tender Relative ScarcityMoney and Prices Value of the Dollar D = 1/Price LevelInflation and AcceptabilitySo, What Backs the Money Supply?Stable Value!through...Appropriate Fiscal PolicyIntelligent Management of the Money SupplyCentralization and Public Control Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils The 12 Federal Reserve Banks Central Bank Role Quasi-Public Banks Bankers Banks Commercial Banks & ThriftsTHE FEDERAL RESERVE AND THE BANKING SYSTEMTHE FEDERAL RESERVE AND THE BANKING SYSTEMOpen MarketCommitteeAdvisoryCouncilsBoard ofGovernors12 FederalReserve BanksCommercialBanksThrift Institutions(Savings & loan associations,mutual savings banks, credit unions)The Public(Households andbusinesses)FEDERAL RESERVEReceive $ from commercial banks and othersDecides if it is fit or unfitFit is storedUnfit is destroyed by machines that shred it to 1/16 of an inchAbout 1/3 are unfit26