CURRENCY AND ITS IMPLICATIONS

Money in the world…

Anything accepted as payment4 types of money:

Commodity money

Flat Money

Credit Money

Representative Money

Money in the World

Commodity Money

Value comes from the commodity which is was made

Can be used as a medium of exchange

Examples: gold, silver, copper, salt, peppercorns, large stone.

A commodity is the same no matter who produces it

Different types of commodities

Fiat Money

Government declares Fiat money to be legal tender

Because it is considered legal tender, it is made to be used when buying or selling good as well as paying taxes.

Examples: US dollar, Euro, Yuan, and Yen

Has value only by government order

Various paper currencies from around the world

Credit Money

Claim against a person to purchase goods

Something that is not immediately repayable, a promise of future payment

Examples: credit cards, banknotes,

Consider as an IOUCommon example of credit money

Representative Money

Money that consists of a claim held elsewhere

Certain amount of valuable metal is stored in treasury while equivalent paper is in circulation

Examples: gold certificates, silver certificates

Metal backed money Gold Certificate

The different values money takes on in the world

Values

Exchange Rates

The exchange rate between two currencies compares the currency of one country to the currency of an other in a ratio.

The Foreign Exchange Market trades currencies and makes it easier for a bank to buy and sell currencies.

Values of currencies change depending on the economy of the supplying country

For example

The conversion rate between one USD and one Chinese Yuan is 1 to 6.826, respectively

The conversion rate between a USD and a British Pound is 1 USD to .628 GBP

Therefore, take into consideration 100 USD. How many Yuan would that be equal to? How many GBP would that be equal to?

100 USD = 682.6 Yuan = 62.8 GBP

How stable IS the economy?

Stability

Economic Stability

An economy is said to be stable when there is minimal inflation as well as constant output growth.

When a certain economy is unstable, it is said to have frequent large recessions and very high variable inflation.

Although the USA is currently in a recession, it is considered economically stable. Germany as well as Japan are also two very economically stable countries.

Fluctuation in the macro economy

Economically stable countries

History behind money

First began using barter-like methods

Many cultures later developed commodity money

This system then evolved into using representative money

Paper money was then used after the notes of representative money were eventually made legal tender

Now, money can be used in many different ways including the purchasing of goods over the internet using credit cards

History of money Money growing!

COUNTERFEIT MONEYThe illegal reproduction of money

Fraud

The illegal production or replication of currency is considered fraud.

Counterfeiting is as old as money itself.

Clipping Modern counterfeiting

includes the reproduction of paper money

Can be used as a means of warfare

Can cause the value of real money to decrease

Inflation due to the over circulation of money

Companies can lose money because they do not get reimbursed if counterfeits effect them

Counterfeit money Effects on society