IG Economics 16
Money and banking
Money 货币
Money is any commodity that can be used as a medium of exchange for the purchase of goods and
services, such as banknotes and coins.
(legal tender 法定货币)
Forms of money include:
Cash(banknotes and coins) legal tender
Commercial bank deposits
Money 货币
Cash
Banknotes and coins are a physical form of money.
Inconvenient and risky to use for larger transactions.
In the UK, cash accounts for less than 3 per cent of the country's total money supply.
Bank deposits银行存款
Money reserves placed in commercial bank accounts.
This accounts for the vast majority of all money
Commercial bank money is in electronic form, customers use credit and debit cards or make
online bank transfers
Money to be transferred electronically between bank accounts.
Money 货币
In most countries, the main form of money is bank accounts.
These are responsible for the largest proportion (in terms of value) of payments made.
There are a number of ways of transferring money from one bank account to another.
These include direct debits, credit cards and mobile phones.
Although bank accounts are the most important form of money they are not legal tender,
whereas coins and bank notes are.
Legal tender
is any form of payment which, by law, has to be accepted in settlement of a debt. So a person
has to accept bank notes in payment, but they have the right to refuse,
for example, a credit card.
Money 货币
There are four functions of money货币的四种功能:
A medium of exchange交换媒介
A measure of value(unit of account) 价值尺度(计价单位)
A store of value 价值储藏手段
A standard for deferred payment延期支付标准
Money 货币
There are four functions of money货币的四种功能:
1️⃣ A medium of exchange
交换媒介
Money functions as a way to conduct trade.
Widely recognised and accepted as a means of payment for goods and services.
2️⃣ A measure of value(unit of account) 价值尺度(计价单位)
Measures market value of different goods and services.
Far more efficient for trading purposes to express the price of goods and services in dollars
rather than using products.
Money 货币
There are four functions of money货币的四种功能:
3️⃣ A store of value价值储藏手段
Money is a store of value it can be stored and used in the future
Money must be able to hold its purchasing power over time, thus removing the urgency to trade
straightaway.
4️⃣ A standard for deferred payment延期支付标准
E.g., loans taken out today are repaid in the future.
Thus, money is used as the standard to pay off debts.
Money 货币
Characteristics of money include:
1️⃣Durability耐用性
2️⃣Acceptability接受性
3️⃣Divisibility可分性
4️⃣Uniformity统一性
5️⃣Scarcity稀缺性
6️⃣Portability便携性
Money 货币
To act as money, an item does not need to have intrinsic value.
An item does have to possess a number of characteristics for it to serve as money.
The most important one is that it should be generally acceptable.
If people are not prepared to accept the item as payment,
it will not be able to carry out the functions of money.
To achieve general acceptability, the item has to be in limited supply.
Money 货币
Durability耐用性
Banknotes and coins, should be fairly long lasting yet easily replaced if it becomes worn.
A US dollar bill can be folded forward and back around 4000 times before it will tear.
Acceptability接受性
Money is widely accepted as a medium of payment支付手段 for goods and services.
Legal tender is the official money of a country
Gold is universally accepted as a form of money.
Divisibility可分性
As money is a measure of the value of goods and services, it must be divisible.
Money 货币
Uniformity统一性
This means that all $50 banknotes will look identical in terms of shape, size and design. The
same applies to all legal tender denominations of banknotes and coins.
Scarcity稀缺性
Silver and gold are better types of money due to their scarcity.
The supply of money is regulated by the country's central bank so that the money retains its
value over time by being relatively scarce.
Portability便携性
Money 货币
In the absence of money, the economy resorts to a system of bartering以物易物,
although this requires a double coincidence of wants in order to function.
Problem with bartering:
Divisibility可分性
Half a sheep or two-thirds of a chicken is not very useful for traders.
Portability便携性
Compare the portability of a sheep or fish with that of paper money.