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Copyright © Texas Education Agency. The materials found on this website are copyrighted © and
trademarked ™ as the property of the Texas Education Agency and may not be reproduced without the
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Texas public school districts, charter schools, and Education Service Centers may reproduce and use
copies of the Materials and Related Materials for the districts’ and schools’ educational use without
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schools or any entity, whether public or private, educational or non-educational, located outside the state
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Copyright © Texas Education Agency, 2013. All rights reserved.
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What is Money?
• A medium of exchange
– Anything of value
– Can be exchanged to purchase a product or service
• Historical forms of “money”:
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Salt, as with Romans
Shells, as in seaside villages
Gold, silver
The Euro, for European Union member countries
Currency
Anything that has value to someone else and can
be traded, or bartered
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Metal Standards of Money
• Both gold and silver were traded as money, mostly
gold, in earlier times.
• Silver standard – around 1800s but worth much less
than gold
• Gold standard – around 1900
– Gold Standard Act of 1900 fixed the price for currency with
gold
– FDR outlawed privately owned gold in 1933
– Bretton Woods System in 1946 set gold at $35/ounce, but
ended in 1971 when Nixon ended the fixed trading price of
gold
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Currency Over the Years
• Coins (metal currency)
– Pounds and shillings during colonial times
– The “real”, a Spanish dollar, had higher silver content
• Paper certificates
– During Revolutionary War
– Not quite trusted
• Mint Act of April 1792
– Authorized gold, silver, and copper coins
• Paper money printed by the U.S. Government in
1861
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Currency Over the Years (continued)
• National Currency Act of 1863
– Became the National Banking Act of 1864
– Established standards for currency
– Established a national currency
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National Banking Act of 1864
• Not only created a national currency, but also
created a reserve system among banks
• Banks were able to borrow from other banks’
reserves
• Created uncertainty with the system due to lack of
‘reserve liquidity’
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Purposes of Banking
• Making money, mainly through the “spread”
– The difference between the interest rate a bank has its
borrowers pay for loans and the interest rate a bank pays
customers on their deposits.
– Short-term (usually less than one year) deposit rates are
lower than long-term (usually longer than one year).
– Generally short-term loan rates are higher than long-term
loan rates.
• Safeguarding customers’ money
– Safe banks increase their customers’ confidence
– Promoted by the Federal Reserve and FDIC
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A Banking Timeline – 1791-1836
• The First Bank of the United States
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Chartered in 1791 at the urging of Alexander Hamilton
Privately owned
Bank notes of this bank were the most common currency
Westward expansion created distrust of Eastern bankers
1811-charter expired and not renewed
• The Second Bank of the United States
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Created in 1816
President was Nicholas Biddle
Regulating credit and the money supply was attempted
Charter expired in 1836 and not renewed
• State banks grew in popularity
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The Federal Reserve Act of 1913
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Fed (Federal Reserve) Facts
• There are 12 Federal Reserve Banks which each serve
their own district.
• They do not print money.
• They disburse cash as their member banks need it.
• It can lend money to member banks but does not loan
money to private citizens.
• The “Fed” is responsible for setting U.S. monetary policy.
• It does not set interest rates, but rates fluctuate
depending upon the “discount rate” that the Fed does
set. This is the rate the Fed charges banks when they
borrow money.
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Bank Crisis - 1929-1939
• Great Depression partial causes:
• 1907- a severe banking panic emphasized the need for a strong,
centralized banking system
• 1920s-booming stock market, which led to people borrowing
money they didn’t have so they could purchase stocks, also
known as buying on margin
• Stocks were usually sold for a profit without the borrowed funds
being repaid, which led to risky investing
• When the market started to fall, investors in large numbers sold
their stocks; investors included banks, who also lost money
• Banks could not invest, businesses failed, individuals lost jobs
and could not pay expenses or debts
• In droves people tried to withdraw money from banks (called a
“run on the bank”) and because banks only hold a small
percentage of deposits on hand, so there was not enough cash
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Bank Crisis - 1929-1939 (continued)
• President Franklin D. Roosevelt closes banks on
March 6, 1933, declaring a ‘bank holiday’.
• Emergency Banking Act of 1933 (also called the
Glass-Steagall Act)-passed after the bank holiday
– Established the FDIC which guarantees deposits of
$250,000 per depositor as of 2008
– Separated commercial banking from investment banking
• Banking Act of 1935
– Expanded monetary controls of the Federal Reserve
– Board member terms were lengthened
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The World Bank Group
• Established in 1944 to help rebuild Europe
post World War II
• Not a traditional bank
• 188 member countries
• Two main goals:
– Reduce poverty
– Support development
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World Bank Group Organizations
International Bank for Reconstruction and
Development (IBRD) – focuses more on middleincome countries
International Development Association (IDA) –
focuses on the poorest countries
International Finance Corporation (IFC)
Multilateral Investment Guarantee Agency (MIGA)
International Centre for Settlement of Investment
Disputes (ICSID)
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The World Bank Group Assistance
• Provide low-interest loans
• Provide grants
• Services such as:
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Education
Health
Infrastructure
Development
Agriculture
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Business Financing
• Export-Import Bank of the United States (1934)
– Part of FDR’s New Deal programs
– Assists in financing the exportation of goods from the U.S. to
international markets
– Provides insurance to cover risks such as buyer non-payment or war
(especially in developing countries)
– Offers competitive financing to foreign buyers
• Small Business Administration (1953)
– Financial assistance to small businesses:
• From small loans to venture capital loans
• Government contracting dollars
– Non-financial assistance to small businesses
• Training
• Provides a voice in Congress for small businesses
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Today’s Banking System
• Issues affecting banking in the late 20th century:
– Inflation – a rise in the overall level of prices over time
– Reduces purchasing power
– Approached 14% in 1980
• Monetary Control Act of 1980
– Most significant reform of the banking industry since the
1930s
– Raised FDIC insured amounts from $40,000 to $100,000
per account
– Deregulated interest rates paid on deposits
– Created NOW accounts (Negotiable Order of Withdrawal)
which allowed interest plus checking account features
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Today’s Banking System (cont.)
• Check 21 (2004)
– Goal was to develop check-processing efficiencies
– Allows “substitute checks”:
• Check images
• Electronic checks
• Reduces transportation costs of checks
• 2008-FDIC insurance raised to $250,000 per
depositor
• Online banking security – debit card transactions
exceed checks
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Independent Practice Assignments
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Dollar Bill Poster Assignment #1 – Students are to research the symbolism of the
elements of the dollar bill. They are to either enlarge a print copy or draw a dollar bill,
front and back, onto a poster or flip chart page. Label at least ten items on the bill with
the meaning behind the symbols, for example, what the scale means, the pyramid, or
the eagle.
World Bank Research Assignment #2 – Have students go to the World Bank web site
listed in the Reference section. Locate the Project Map link. They should click on a
location and observe the number of projects in that area being funded by the World
Bank. Students will write a one-page report detailing at least two projects going on in
that particular area and state the positive consequences and potentially negative
consequences (such as effects of the cash outlay of the project, effect on neighboring
areas, …) of the projects themselves as well as how much funding is involved.
Money and Banking Timeline Assignment #3 – Students are to create a timeline of at
least ten events they consider to be important in the history of banking. In addition to
stating the event, date, and a brief description, students will include the impact on either
the economy, banking institutions, or the public as consumers. This timeline can be
created on the computer.
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