Chapter 11 Section 1 The Evolution of Money. Before today’s currency, people practiced a barter economy – a moneyless system that relied on trade People.

Chapter 11

Section 1The Evolution of

Money

The Evolution of Money

• Before today’s currency, people practiced a barter economy – a moneyless system that relied on trade

• People traded fish, milk, shoes, anything valuable

The 3 Functions of Money

1. Medium of Exchange – something accepted as payment

2. Measure of Value – a common denominator that can be used to express worth

3. Store of Value –property that allows people to be saved until later

Money in Early Societies

*Money made life easier so people used whatever was scarce in their

area*

Commodity Money – money that has an alternative use as a good or

commodity (tea leaves, peppercorn)

Fiat Money – money used by government decree

(order)

Money in Colonial America

• Gunpowder, musket balls, and corn were used as commodity money

Money in Colonial America

• Continental dollars were printed to finance the Revolutionary War

• Specie – money in the form of coins made from silver and gold

Characteristics of Money

1. Portability

2. Durability

3. Divisibility

4. Limited Availability

CURRENCY TYPE:

Limited Availabilit

y?Portable? Divisible? Durable?

Culture of the

Society

1.

2.

3.

4.

5.

6.

7.

Parmesan Cheese: Ancient Italy

Coins: Roman Empire

Cocoa Bean: Early Mexican and Central American

Societies

Potlatch (Gift Giving): Native Americans

Fur Skins: Ancient Russia

Ensuba (Potato Masher): Ancient Cameroon

The Dollar: AMERICA!

Section 2:

Early Banking and Monetary Standards

Monetary StandardThe mechanism

designed to keep the money portable, durable, divisible,

and limited in supply

Currency in the United States

1. Continental Dollars2. Private Bank Notes3. Greenbacks4. National Bank Notes5. Gold & Silver Certificates6. Treasury Coin Notes7. Modern Federal Reserve Notes

Growth of State Banking• State Banks – banks

that operate from state government

• At first, most state banks printed only the amount of currency they could reasonably back with their gold and silver reserves

Problems With Currency

• Each bank issued its own form of money

• Banks could print more money whenever it wanted

The Greenback Standard

• During the Civil War, Congress wanted to make one standard monetary unit

• United States Notes – a new federal fiat paper currency that had no gold or silver backing

National Currency• To make sure greenbacks would not

become worthless, the U.S. created a National Bank to keep things uniform

Alexander Hamilton - Founder

Thomas Jefferson – against it

The Gold StandardA monetary standard where the basic

currency unit is equal to a specific amount of gold

• Advantages: – people felt more secure– prevented the government from printing too

much money

• Disadvantages:– gold stock might not grow fast enough (the price

of gold might not change dramatically over time)

Section 3:

The Development of Modern Banking

• Federal Reserve System – 1913, the nation’s first true central bank

• Central Bank – a bank that can lend to other banks in times of need

The Federal Reserve System

• For membership in the Fed, all national banks were required to become “members” (part owners)

• The Fed was organized as a corporation – hopeful members had to purchase shares of stock in the system

The Federal Reserve

• It is privately owned, but the Fed is publically controlled… The president appoints with congressional approval

• Federal Reserve Notes – paper currency issued by the Fed

The Great Depression• During this time, banks did not

have deposit insurance for their customers

• Customers rushed to withdraw their funds, called a run on the bank

Federal Deposit Insurance Corporation

• FDIC –insures customer deposits in the event of a bank failure

Other Depository Institutions

• Savings banks

• Credit Unions

Dealing with Failed Banks

• Bank failures were also an issue in the 1980’s

• FDIC can seize the bank and either sell it to a stronger bank or liquidate it and pay off the depositors

• This worked for any bank – S&L’s, commercial banks, etc.

US Currency Timeline

Create a timeline and label each of the different types of currency used in the United States.

• For each currency be sure to label:– The time period it was used– If it had any faults or problems– If it was backed by any guarantee

As seen in the video clip, more and more societies are switching to electronic currency (credit cards). Consider the 4 characteristics

needed for money to be successful.

• Do you think using electronic currency is a smart or risky idea? Why?

• What are the pros and cons to electronic currency?

• What does this tell us about our culture?

Explain your answer in at least one PARAGRAPH.