Money!

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With a partner, discuss: what is the
function (use) of each of the items
below?
Answer:
• Salt is one of the world's oldest forms of payment. In fact, the word
salary derives from the Latin "salarium," which was the money paid
to Roman soldiers to buy salt. It was the main form of currency in
the Sahara Desert during the Middle Ages, and was used
extensively throughout East Africa. Typically, one would lick a salt
block to make sure it was real and break off pieces to make change.
Doty's block, seen here, is 1,500 years old.
Other incredible, edible currencies include "reng," a yarn-ball of
tumeric spice wrapped in coconut fibers that is used for trade in the
Solomon Islands; cacao (or chocolate beans), widely used
throughout Mexico and Central America; and Parmigiano Reggiano
cheese, so highly regarded that it was used both as currency and
bank collateral in Italy.
One particularly inedible currency: the poisonous money seeds of
Burma. Which if nothing else proves that money does indeed grow
on trees — or at least bushes.
•
http://www.cnbc.com/id/31763263/The_Weirdest_Currencies_In_the_World?slide=5
Money!
What is money?
What are money’s three functions?
Can you trade without money?
How are credit and money different?
What are the two major types of money?
What is money?
Money is anything
people accept as
payment for goods
and services
– Can be used to pay
debts
Money has three
functions:
– Medium of exchange
– Unit of account
– Store of value
Exchange (trade) can
happen without
money.
Barter—direct
exchange of one
good/service for
another
– Problem: you waste
time in transactions
Medium of Exchange
A medium of exchange
is anything widely
accepted in exchange
for goods and services
• Removes problem of
barter, because
everyone is willing to
accept it as payment
• This is called being
fungible—
interchangeable for a
valued good/service
• Increases trade by
providing a more
convenient way to
exchange
Unit of account
Unit of account—function of money that
provides a common measurement of value
for goods/services
• Allows us to compare the value of two
items
• Monetary units are what we call our
money (US/Australia—dollar; El
Salvador—colon, Japan—yen,
Afghanistan—dinar)
Store of value
Store of value—the function of money to
hold value over time
• This allows us to save our money and
spend it in the future
• Does not mean that the value will remain
constant (inflation)
Other properties of money
• Money must be scarce, but not too scarce
• Should be portable—easy to carry
• Should be divisible—able to “make
change”
• Must be uniform—easy to tell how much it
is worth, look the same as other money of
its type
What stands behind U.S. money?
• Commodity money—anything that serves as money,
has market value based on the material it’s made from
(tangible value)
– In other words, has value as money AND as a good
– Should the penny be considered commodity money?
– Used to be backed by gold/silver
• Fiat money—money accepted by law, not because of its
tangible value
– In other words, what the government says is acceptable for
exchange
– Dollar bills
– “THIS NOTE IS LEGAL TENDER…” means your paper money is
fiat money
Think about it…
•
•
•
•
Are credit cards money?
Are debit cards money?
Are seashells money?
Is sand money?
THE ANSWER (in the U.S.) is NO.
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