Chapter10: Money & Banking The Everybody Bank

Three Uses of Money Medium of Exchange: anything that is used to determine value during the exchange of goods and services Unit of Account: means for comparing the values of goods and services Store of Value: something that keeps its value if it is stored

Six Characteristics of $ Durability Portability Divisibility Uniformity Acceptability Limited Supply

Sources of Money’s Value Commodity Money: objects that have value in and of themselves, ex-cattle Representative Money: have value because the holder can exchange them for something else of value, old school gold and silver certificates Fiat Money: money backed by the gov’t

History of American Banking Alexander Hamilton First National Bank Held $ for the govt Carried out power to tax Issued $-backed by gold and silver 1811 charter ran out 2nd Bank Chartered Killed by Jackson

Free Banking Era 1837-1863 “Wildcat” Era State Chartered Banks Often failed Not enough gold and silver Bank runs Fraud Inconsistent currency

Civil War North-Greenbacks South-currency backed by cotton-worthless

National Banking Acts 1863-1864 Three Powers to the Federal Government Power to charter Banks Required reserves of gold and silver at banks Power to issue a single national currency

The Gold Standard Adopted in 1870’s Paper $ was worth an equal amount in gold Made $ valuable and stable Made the money worth something-couldn’t print more bills than gold available

The Federal Reserve

The Fed Founded during the Wilson Administration in 1913 The First True Central Bank

Organization of the Fed Member Banks-12 regional Federal Reserve Board-appointed by the Pres…Ben Bernancke Loan Notes-$$$$$

Banking Reforms FDIC New Deal FDR 100,000 per depositor

70’s and 80’s…UH OH Savings and Loans Unregulated banks Bad Rates Bad Loan Fraud People lost Billions on bad investments