LYCEUM OF THE PHILIPPINES UNIVERSITY MONEY AND PAYMENT SYSTEMS

Money, Banking And The Financial Market What is Money – When we talk of someone who makes a lot of money – is a person who has a high INCOME. Or a WEALTHY person.

Money, Banking And The Financial Market We use money and narrow its meaning in a specialized sense to mean anything that can be used to make an economic transaction.

Money, Banking And The Financial Market Most people insist on payment in money at that time of goods or services are supplied because alternatives just don’t work very well. Ex: In a small sari-sari store, they always ask for money when you purchase things and will not take credit cards or checks.

Money, Banking And The Financial Market INCOME ; If we say it is an income it is a flow of earnings overtime.

Money, Banking And The Financial Market WEALTH ; If we say it is a WEALTH it is the value of assets minus liabilities

Money, Banking And The Financial Market What is Money – It is an ASSET generally accepted as payment for goods and services or repayment of debt.

Money, Banking And The Financial Market What is Money – It is an asset generally accepted as payment for goods and services or repayment of debt. It is the stock of items used to make payments for good and services.

WHAT ARE THE THREE (3) CHARACTERISTICS / FUNCTIONS OF MONEY It is a means of payment - (in exchange for goods & services) Unit of Account – (used to quote prices)‏ Store of value – (move purchasing power into the future)

WHAT ARE THE CHARACTERISTICS OF MONEY Used in exchange for goods and services Use to quote prices Use to move purchasing power into the future

PAYMENT SYSTEM Is the web of arrangements that allow for the exchange of goods and services.

PAYMENT SYSTEM Commodity Monies Fiat Money Checks Electronic Payment

PAYMENT SYSTEM Commodity Monies Included everything from silk in China, to butter in Norway, whale teeth in Fiji and blocks of salts in Venice. They have value even if they were not used as money. For most Gold has the most common commodity money. It can be cut into smaller pieces without losing its value.

PAYMENT SYSTEM FIAT MONEY This is a high quality paper, nicely engraved with lots of special security features. Because its value comes from government decree or FIAT.

PAYMENT SYSTEM Checks Note that checks you use to pay your rent and bills are not legal tender. They are not money. It is just an instruction to the bank to take funds from your account and transfer them to other person or firm.

PAYMENT SYSTEM Electronic Payment This is the movement of funds directly from one account to another. Debit Card Credit Card Checks Electronic Transfers

PAYMENT SYSTEM Debit & Credit Cards accounts to 1/3 of the 75 Trillion or so on retail non-cash payments each year. Checks & electronic transfers accounts for the rest.

PATH OF A PAPER CHECK

FUTURE OF MONEY Means of Payment This has already undergone big changes. The time is rapidly approaching when safe and secure systms for payment will use virtually no. money at all.

FUTURE OF MONEY Unit of Account The efficiency of quoting prices in commonly understood terms is not going change. In future there will be little reason to maintain different units of account across different countries. Price systems will be more like systems of weights and measures.

FUTURE OF MONEY Store of Value Finally money as a store of value is clearly on the way out. With the advances in financial markets, many financial instruments have become highly liquid. For now, we can concluded that in the future, there will almost be less and less money.

Commodities & Fiat Monies 2003 – In the Philippines, it was reported that there were P100 B non-cash payment made in the daily Credit Cards Debit Cards Checks and Electronic Transfers

OVERVIEW DEBIT CARDS Works like a check (only faster)‏ Your cash must be higher than the amount you are buying. Electronic messages goes to your bank almost instantly on the same day and your account is debited immediately.

OVERVIEW CREDIT CARDS Creates deferred payment. Issuer agrees to make payment for you and your repay the debt later. If you are late in payment, there is a late payment fee. If you do not pay the entire debt every month, you pay interest on the balance. If you pay the entire amount every month, there is no late fee and no interest charge. Since you do not pay right away, you get interest FREE Loan from the time you purchase to the time you pay the balance.

OVERVIEW DIGITAL CHECKS For at least 30 years there were preconditions that paper checks will disappear because of digital checks, consisting of Credit Cards Debit Cards ATM Automatic Bill Payments Internet Banking

OVERVIEW DIGITAL CHECKS Instead millions of people receives thick envelopes from their banks which involves cancelled checks with their monthly statements. Paper checks accounted to 60% of payments. In October 28, 2004 the CHECK 21 (Check Clearing for the 21st Century Act went into effect).

OVERVIEW NOTE: Delivering tons and tons of paper transactions everyday and transporting them is a big task. Instead of shipping papers across the country banks transmit digital images of each checks. This images creates “SUBSTITUTE CHECK”, which has the same legal standing as the original checks.

OVERVIEW NOTE: Processing checks electronically is definitely cheaper. Experts believe that scanning and transmitting images – banks will save at least US$ 10 B a year. This reduces the risk of transporting checks and this is the main reason why CHECK 21 was enacted and passed.

OVERVIEW DOWNSIDE: People cannot write checks with the expectation that they will have a day or 2 to make a deposit to cover whatever is to be covered in their account.

OVERVIEW FINALLY: As digital imaging takes place, we may finally see the demise of paper checks.

Seatwork Describe 3 ways you could pay for your morning cup of coffee. What are the advantages and disadvantages of each.

LYCEUM OF THE PHILIPPINES UNIVERSITY Thank you