Money & Banking

By: Professor Jermaine Whirl

For Students of East Georgia College
 What is Money?
• Assets that people are generally willing to
accept in exchange for goods and services or
for payment of debts.
– Assets: Anything of value owned by a person or
firm.
 Where did money come from?
• Evolution of Money
– Simple economies began as bartering system in
which they traded a good for a good.
– This system had major short comings, because the
value of one good may not equate to the value of
another good. Example (Chicken and a new wood
chair).
 Evolution of Money
• Commodity Money
• Fiat Money
• Checks
• Electronic Payment (Pay-Pal)
• E- Money (Debit Cards)
– Smart Card- Prepaid store of value card

– Questions: Are we headed for a cashless society?

– Are there any benefits of having a cashless society?
– Should we still make the Penny?
 Functions of Money
• Medium of Exchange:
– Money serves as a medium of exchange when sellers are
willing to accept it in exchange for goods or services.
• Unit of Account:
– Creates a way of measuring the value of goods and services
within the economy in terms of money.
• Store of Value:
– If you don't use all you accumulated dollars to buy goods
and services today, you can hold the rest to use in the
future. Money accumulated over time holds value.
 Money Characteristics
• Durable- Money should last for
an extended time. It shouldn't be
easily decompose, deteriorate,
degrade, or otherwise change
form.
• Divisibility- means money can be
divided into small increments that
can be used in exchange for
goods of varying values
• Transportability- means that
money can be easily moved from
one location to another when such
movement is needed to complete
exchanges.
• Non-Counterfeiting- means that
money cannot be easily
duplicated. A given item cannot
function as a medium of exchange
if everyone is able to "print up,"
"whip up," or "make up" a batch
of money any time that they want.
 What Can Serve as Money?
• Commodity Money:
– Gold, Silver, Copper at times:
• Problems with this is that these items must be pure, the
values of these things can change.

• Fiat Money:
– Money such as paper currency, that is authorized
by a central bank of governmental body and that
does not have to be exchanged by the central bank
for gold or some other commodity money.
 Money Aggregates
• Money Aggregates were created to track down
where money is going, it's current circulation,
and the current supply of money in the
economy.
• Knowing this will enable policy makers to
make sound judgments on the correct
monetary policies to use to regulate the
economy.
 Money is the United States
• M1: Narrowest Definition of Money:
– Currency, which includes all paper money and
coins in "circulation" (meaning not held by banks
or the government.
– The value of all checking accounts (Demand
Accounts) at banks
– The value of Traveler's checks.
• Some facts:
– 80% of all purchase made in the US are through Checking
Accounts
– 60% of US Currency is actually held outside the US.
 Money is the United States
• M2: A Broader Definition of
Money
– M2 includes everything in M1
– Plus Savings Accounts
– Small-Denomination Time
Deposits- such as CDs
– Balances in Money market
Deposits
– & Non-Institutional money
market accounts (or non-
banking institution money
market accounts)
– Large Denomination of time
deposits & repurchase
agreements
– Money Market Mutual Fund
Shares (Institutional)
– Repurchase Agreements
– Eurodollars- US dollars
deposited in foreign banks
outside the US, or in foreign
branches of US Banks.
 Money in the United States
• M3- has been discontinued by the Federal
Reserve as of March 2006.
• http://www.federalreserve.gov/pubs/suppleme
nt/2008/08/table1_10.htm
• Large Denomination of time deposits are now
published by the Board in the Flow of Funds
Accounts
 Money Creation in the US
• No other body can print money besides the
Federal Reserve System/ US Treasury (not
congress, the president, or anyone else.
• Money can be created in the US two ways:
– Federal Reserve prints money (which can cause
inflation)
– Or Lending of money from bank to bank
• The Money Supply itself, is only controlled by
the Federal Reserve System!
 Role of the US Treasury
• Managing Federal finances;
• Collecting taxes, duties and monies paid to and due to the U.S.
and paying all bills of the U.S.;
• Currency and coinage;
• Managing Government accounts and the public debt;
• Supervising national banks and thrift institutions;
• Advising on domestic and international financial, monetary,
economic, trade and tax policy;
• Enforcing Federal finance and tax laws;
• Investigating and prosecuting tax evaders, counterfeiters, and
forgers.