BỘ GIÁO DỤC VÀ ĐÀO TẠO
TRƯỜNG ĐẠI HỌC KINH TẾ - TÀI CHÍNH
THÀNH PHỐ HỒ CHÍ MINH
The Economics of Money, Banking,
and Financial Markets
Chapter 3: WHAT IS MONEY?
TRẦN NGỌC THANH
thanhtn@uef.edu.vn
1
Đại học Kinh tế - Tài chính thành phố Hồ Chí Minh
Learning 0bjectives
●
Describe what money is
●
List and summarize the functions of money
●
Identify different types of payment systems
●
Compare and contrast the M1 and M2 money supplies
2
Table of contents
01
Meaning of money
02
03
Functions of
money
04
Evolutions of money
Measuring money supply
3
What is money?
● Money (or the money supply): anything that is generally
accepted as payment for goods or services or in the
repayment of debts.
● Wealth: the total collection of pieces of property that serve to
store value.
● Income: flow of earnings per unit of time (a flow concept)
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Evolution of the Payments System
5
Evolution of the Payments System
● Barter economy: without money, goods and services are exchanged directly
for other goods and services.
● Commodity Money: is made up of precious metals or another valuable
commodity
● Fiat Money: paper money decreed by governments as legal tender
○ Not backed by a physical commodity and its value depends on demand
and supply
○ uneasy to transport with a large amount.
● Check: an instruction to your bank to transfer money from your account
● Electronic Payment (e.g. online bill pay)
● E-Money (electronic money): Debit card, stored-value card (smart card), Ecash (zalopay)
● Cryptocurrencies: Bitcoin
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Functions of money
● Medium of Exchange: it is used to pay for goods and services
○ Reducing time and transaction costs spent in exchanging goods and
services => economic efficiency.
● A medium of exchange must:
○ be easily standardized
○ be widely accepted
○ be divisible
○ be easy to carry
○ not deteriorate quickly
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Functions of money
● Unit of Account:
○ Used to measure value in the economy
○ Reduces transaction costs
● Store of Value:
○ Used to save purchasing power over time.
○ Other assets also serve this function.
○ Liquidity is the relative ease and speed with which an asset can be
converted into a medium of exchange.
○ Money is the most liquid assets but loses value during inflation.
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Measuring Money Supply
● There are some ways to measures of the money supply monetary aggregates, basing on liquidity.
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Measuring Money Supply
● M1 (most liquid assets) = currency + traveler’s checks +
demand deposits + other checkable deposits
● M2 (adds to M1 other assets that are not so liquid) = M1 +
small denomination time deposits + savings deposits and
money market deposit accounts + money market mutual fund
shares
10
Measuring Money Supply
11
Measuring Money Supply
12
Measuring Money Supply
● M1 versus M2: Does it matter which measure of money is
considered?
● Conclusion: the choice of monetary aggregate is important
for policymakers.
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Measuring Money Supply
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