Money and Banking There is $665 billion in currency [notes & coins]. $37 million in notes is printed each day.
Dollar Decoded Fed bank that issued the bill [Chi.] Bills are crowded with numbers and letters that help the U.S. Treasury track printing errors & authenticate currency. Here’s what many of them mean: Number corresponds to letter in circle indicating issuing Fed bank. First letter corresponds to issuing Fed bank Last letter tells how many times serial number has run 25 Branches
[Jackson’s portrait is larger, free from the oval] New $20 colors are peach , blue , and green . This is the 20’ s 20 th new look . New background colors add an extra layer of complexity for counterfeiters Ink appears either copper or green , depending upon the angle at which the bill is viewed. The first $20 bill was introduced in 1861 . Back then, $20 was about the monthly wage for manual laborers . The average $20 bill lasts 3 years . There are 5 billion twenties in circulation, enough to circle the earth 19 times. An ATM can hold up to 7,500 bills, or $150,000 in twenties. The $20 bill is the most counterfeited in the U. S. , while the $100 is most counterfeited abroad .
The New York Fed has more gold than any other vault in the world, Including Fort Knox. With walls of steel and concrete several feet thick, it has the gold of 63 countries , worth over $120 billion. What To Do If Your Money Gets Damaged!! 30,000 people a year send $96 million of damaged bills to the Bureau of Mutilated Division . If you can send them 51% , they will send you a new bill. An Iowa farmer once left his wallet in a field and a cow ate it. He killed the cow and mailed the cow’s stomach to the bureau. Examiners redeemed the money and sent the farmer $850 .
$100 Dollar Bill – Red Polymer Thread $50 – Yellow $20 – Green $10 – Orange $5 – Blue [This $5 will be hard to counterfeit]
Shredding of U.S. Money $500 million is shredded at the 12 Feds each day. That is over $100 billion each year . A typical dollar last about 18 months. Higher denominations last longer. Despite a camera on those whose job it is to shred money – can you get out of the shredding room with some of the notes? Yes!!! An employee in Washington took $1.7 million in $100 bills [ he sneaked 1,700 $100 bills past his security]. He was caught when his bank teller reported his frequent large deposits in his bank. At the Boston Fed, an employee made off with $23,000 when he stuffed money into his pockets after obstructing the view of his coworkers. He was caught when his employer viewed the video .
Over 50% of our money is in circulation overseas . There is over $2,000 for each man, woman, and child. The Russians have $40 billion . Argentina has $7 billion . Never the less, many people think we should get rid of pennies – just round up or down. If the price is .25, .26, or .27 – just charge 25 cents ; and if the price is .28, .29, or .30, just start 30 cents . But there is one big problem if we got rid of pennies!!! How would Nike pay their workers?
No paper notes larger than $100 have been printed since 1946.
It cost 3.5 cents to print a dollar which last 1.5 years. It cost 12 cents to mint a sacagawea [“bird woman”] but they last 30 years. [500 million were minted but you seldom see them.] The government could save $400 million if people would use more sacagaweas.
And – The New Dollar To Be Introduced Next Week In Honor of McDonald’s Success
“ Show me the wampum!!” History of U.S. Money [A Panorama of Legal Tender] From Wampum to Credit Cards
Wildcat Banking 1790-1860 State banks issued paper notes in denominations from $1 to $13. They lost their value the farther away you were, thus the name, “ wildcat banking”, only a wildcat could get back to a distant bank to verify its authenticity. Over 3,000 banks issued 10,000 bills but 5,000 were counterfeit. Because some banks were more sound than others, a $5 note at one rarely had the same purchasing power as a $5 note at another.
Yap Island Money Yap Island is a tiny, U.S. trust territory in the S. Pacific, 500 miles from Guam. It is one of the 4 Federated States of Micronesia & has 12,000 Yapese & 6,000 “rai” limestone stones.
Overview of Money, The Fed and Monetary Policy
1. The functions and measurement of money
2. The Federal Reserve and its functions
3. Fractional reserve banking & how it works
4. The Money Multiplier [ 1/RR(.10) = 10
5. Tools of Monetary Policy
a. Discount Rate -rate the Fed charges banks
b. Reserve Ratio- % of deposits banks have to
keep in reserve and can not loan out.
c. B uying (recession) & s elling (inflation ) of b onds
. Objectives 1 . Three functions (roles) of money a. medium of exchange b. unit of account c. store of value 2. What constitutes money in our economy? paper dollars-50%) coins-2% b. DD-48% 3. What “backs” the money supply ? (gold/silver/the faith of the “G”) 4. Explanation of the demand for money . 5. The four-part make-up of the Federal Reserve a. Board of Governors b. FOMC c. 12 Fed Banks d. Member banks Money – any good widely accepted for goods and services or repayment of debt. Money is anything generally acceptable as a medium of exchange. “ Faith” of the “G”
. However, before trade could occur, there had to be a “double coincidence of wants” . Each trader had to have something the other wanted. I’ll trade you a chicken for a pair of shoes. I would love to sell you these shoes but I can’t eat chicken, due to my bad teeth, caused by smoking. In a barter economy a chicken farmer who wants to buy shoes may have to first trade chickens for apples and then apples for shoes because the guy selling shoes wants only apples . Money eliminates this problem. Barter – goods and services were traded without the exchange of money .
The “calculation of exchange” by bartering is much slower than the “calculation of exchange” in a monetary system . It is less expensive to use money. The “calculation of exchange” is fast & easy because whatever the price is, you pay that amount. Here’s $2.00 for one gallon.
So a monetary system is better than a barter system .
T he m onetary system enables the “calculation of exchange” to go much faster.
Three FUNCTIONS OF MONEY 1. Medium of Exchange [ any asset that sellers will accept as payment for g/s] Avoids “double coincidence of wants” that bartering requires. You would have to have a trading partner who “wants to sell you goods you want to buy” and “wants to buy goods you want to sell.”
Three FUNCTIONS OF MONEY 2. Unit of Account [measuring the relative value of goods by stating prices] Example: Microsoft Stock is selling for $50 a share. The new Jag is selling for $32,000. A $2 item is twice as valuable as a $ 1 item. Money is like a yardstick . People use it to compare the worth of things that they buy and sell.
Three FUNCTIONS OF MONEY 3. Store of Value [ storing wealth from one point in time to another ] [ doesn’t wear out easily and holds up to inflation ] Ability of money to hold value over time [Money that lacked durability or did not hold up well to inflation would not make good money [would not store value ]. Other desirable qualities for money are: A. Scarcity B. Portability C. Divisible D. Difficult to counterfeit Greek Coin 2,500 years old
Currency (coins & paper money) plus Checkable deposits equals M1 M1 M2 M3 $1236 2003 Data (billions of dollars) MONEY SUPPLY
M1 M2 M3 $1236 2003 Data (billions of dollars) $5899 MONEY SUPPLY Currency (coins & paper money) plus Checkable deposits equals M1 plus Savings deposits, including MMDA’s plus Small time deposits plus Money market mutual fund (MMMF) balances equals M2
M1 M2 M3 $1236 2003 Data (billions of dollars) $ 5899 $8595 MONEY SUPPLY Currency (coins & paper money) plus Checkable deposits equals M1 plus Savings deposits, including MMDA’s plus Small time deposits plus Money market mutual fund (MMMF) balances equals M2 plus Large time deposits equals M3 Currency (coins & paper money) plus Checkable deposits equals M1 plus Savings deposits, including MMDA’s plus Small time deposits plus Money market mutual fund (MMMF) balances equals M2
WHAT ABOUT CREDIT CARDS? Are They Money? They are not “plastic money.” They do serve as a medium of exchange & the credit card statement serves as a unit of account . However, they do not have a store of value . If the credit card company goes out of business or decides not to honor your card , it is worthless . They are not money because they don’t store value .
WHAT ABOUT Debit CARDS? Are They Money? Debit cards are money . They serve as a medium of exchange ; they serve as a store of value (not an extension of credit); and debit card statements serve as a unit of account . Debit Card
Our Money Is Growing More Abstract Money has grown increasingly more abstract - from a physical commodity , - to a piece of paper representing a claim on a physical commodity , - to a piece of paper of no intrinsic value , - to an electronic entry representing a claim on a p iece of paper of no intrinsic value . [just a Federal Reserve note]
The Value of Money and Price Level The value of money goes in the opposite direction of the general price level . Or, the amount a dollar will buy varies inversely with the price level. Value of Money Prices
Old Bond Prices and the Interest Rate $1,000 x .08 = $80 $800 x .10 = $80 $1,333 x .06 = $80
Rate of interest, i (percent) Amount of money demanded (billions of dollars) 0 50 100 150 200 250 300 10 7.5 5 2.5 0 D m i e S m THE MONEY MARKET Suppose the money supply is decreased from $200 billion, S m, to $150 billion S m1 .
Rate of interest, i (percent) Amount of money demanded (billions of dollars) 0 50 100 150 200 250 300 10 7.5 5 2.5 0 D m i e S m A temporary shortage of money will require the sale of some assets to meet the need. S m1 THE MONEY MARKET