Ukrainian Academy of Banking of the National Bank of Ukraine Banking Department Money and Credit Lecture 5 Monetary systems Anna Serhiivna Lasukova, Lecturer at Banking Department

Agenda 1. The essence of the monetary system and its elements. 2. Types of monetary systems and their evolution. 3. The monetary system of Ukraine

Monetary system Monetary system – is any formal structure adapted by a government that issues a currency which is accepted as the medium of exchange by its citizens and by other governments. The essence of the monetary system and its elements

Servius Tullius primitive monetary system the ruler Servius Tullius (the legendary sixth king of Rome, 578 – 535 BC) created a primitive monetary system in the archaic period of what was to become the Roman Republic. Tullius reigned in the sixth century BC - several centuries before Rome is believed to have developed a formal coinage system. The essence of the monetary system and its elements: historical overview regional hegemony de facto monetary system When a given nation or empire has achieved regional hegemony, its currency has been a basis for international trade, and hence for a de facto monetary system.

The essence of the monetary system and its elements: historical overview Persian daric the Gold Dinar In the West – Europe and the Middle East – an early such coin was the Persian daric. This was succeeded by Roman currency of the Roman empire, such as the denarius, then the Gold Dinar of the Ottoman Empire, and later – from the 16th to 20th centuries, during the the currency Age of Imperialism – by the currency of European colonial powers of European colonial powers: the Spanish dollar, the Dutch Gilder, the French Franc and the British Pound Sterling; at times one currency has been pre-eminent, at times no one dominated

The essence of the monetary system and its elements: historical overview The monetary system emerged in Europe in XVI-XVII centuries

The essence of the monetary system and its elements banking system The normal functioning of credit money is one of the main objectives of the banking system and the organization of cash flow conducted with banks. That’s why the monetary system is one of the components of the banking system. banking legislation In many countries the legal rules that form the monetary system are defined in the banking legislation, especially laws that regulate the activity of central banks. The central bank is institutional center of the monetary system

The essence of the monetary system and its elements Monetary System cash circulation system currency system system of non- cash payments

The essence of the monetary system and its elements ELEMENTS the currency the scale of prices exchange rates types of money center of emission state regulators of cash flow

The essence of the monetary system and its elements generally accepted form a medium of exchange Currency is generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade.

The essence of the monetary system and its elements hryvnia Currency of Ukraine is hryvnia. kopijka Fractional currency is the kopijka.

the value of the goods Scale of price means of expressing the value of the goods due to the weight of the metal content of money in their chosen currency. forms spontaneously Today, the scale of prices forms spontaneously, independently of the will of the state, under the influence of inflation in the economy. The essence of the monetary system and its elements

sustainability of the currency The regulation of the exchange rate regime and operations with currency assets used to protect and ensure the sustainability of the currency. Function “global money” provides the need for establishing and regulating the exchange rate. The essence of the monetary system and its elements

Exchange rate Exchange rate - the price of a nation’s currency in terms of another currency.

The essence of the monetary system and its elements Types of money: -credit money -credit money (any future monetary claim against an individual that can be used to buy goods and services) -bill of exchange -bill of exchange (a non-interest-bearing written order used primarily in international trade that binds one party to pay a fixed sum of money to another party at a predetermined future date) -treasury note -treasury note (a marketable country government debt security with a fixed interest rate and a maturity between one and 10 years. Treasury notes can be bought either directly from the country government or through a bank.)

The essence of the monetary system and its elements Emission system - Emission system - legally established procedure for the issue and circulation of banknotes. Issuing and money withdrawal operation should coordinate: The central bank 1. The central bank – has exclusive right to issue banknotes; Treasury 2. Treasury - State executive body that produces small denominations of money - treasury notes and coins made of cheap types of metal. They accounted for about 10% of the total output of cash.

The essence of the monetary system and its elements Central bank issues money in three ways Central bank issues money in three ways: 1. credit institutions lending by the rediscounting commercial bill of exchange. 2. treasury lending on guaranteeing of government securities. 3. issuing the banknotes by their exchange on foreign currency.

The essence of the monetary system and its elements Regulation of cash and non-cash circulation Regulation of cash and non-cash circulation includes the identifying of cash and non-cash payments areas and mode of usething money in the accounts, forms of payment, schedule of payments, etc. The central bank must strictly control the circulation of money, promote the stability of the currency, regulate the rules for non-cash payments, methods of payment, form and the order of payments

Types of monetary systems and their evolution The monetary system type is determined by its content and elements that contribute to trends and patterns of monetary system functioning.

Types of monetary systems and their evolution Non-market type of monetary system has Non-market type of monetary system has: significant constraints of money functioning administrative methods of money turnover regulation delimitation of spheres of cash and non-cash money circulation prohibition of certain transactions entities and citizens monetary transactions control.

Types of monetary systems and their evolution The market type of monetary system The market type of monetary system provides the free functioning of money. economic methods Regulation of money circulation is carried by economic methods that affect on volume, dynamics and structure of the money supply.

Types of monetary systems and their evolution A self-regulatory monetary system A self-regulatory monetary system was the system of metallic currency – coins. The equal value was a basic regulatory framework, that expressed by the metal contain in the coin. Regulated monetary system Regulated monetary system - a system in which the government commits itself to to ensure the sustainability of issued banknotes.

Types of monetary systems and their evolution 3 types of monetary systems Depending on the type of money (or commodity value), there were 3 types of monetary systems: 1. The monetary system of metallic circulation, based on real money (silver and gold). 1.1 Bimetalism. 1.2 Monometalism 2. The monetary system of paper circulation. 3. The monetary system of credit outstanding.

Types of monetary systems and their evolution Bimetalism Bimetalism is a monetary standard in which the value of the monetary unit is defined as equivalent both to a certain quantity of gold and to a certain quantity of silver. characteristics The characteristics of bimetallism are:  both gold and silver money are legal tender in unlimited amounts.  the government will convert both gold and silver into legal tender coins at a fixed rate for individuals in unlimited quantities. free coinage This is called free coinage because the quantity is unlimited, even if a fee is charged.

Types of monetary systems and their evolution Monometalism Monometalism is a monetary system in which one metal (gold or silver) is the general equivalent.

Types of monetary systems and their evolution Monometalism As of 2013, no countries use a gold standard. From 1936 until 2000 the Swiss Franc was based on a 40% gold-reserve. Gold reserves are held in significant quantity by many nations as a means of defending their currency and hedging against the US dollar, which forms the bulk of liquid currency reserves worldwide. Both gold coins and gold bars are traded in liquid markets and serve as a private store of wealth. In 1999 the European Central Bank and 11 European national banks signed the Washington Agreement on Gold declaring that "gold will remain an important element of global monetary reserves"; the Agreement was later amended and extended.

Types of monetary systems and their evolution LvvP8MaHB4nvcBs9NNlneLDZFYEpO1iwH&index=2 Gold standard vs Fiat vs Bitcoin

Types of monetary systems and their evolution Paper (Fiat) standard Paper (Fiat) standard refers to a monetary standard in which inconvertible paper money circulates as unlimited legal tender. Legal tender Legal tender means that the money is backed by the full faith and credit of the government that issues it. In other words, the government promises to be good for it.

The credit system The credit system is the issuing a money signs, is cash flow that occur from the loan Types of monetary systems and their evolution

Credit System vs Monetary System Types of monetary systems and their evolution

gradually abandoned - поступово відмовитися

The monetary system Ukraine USSR STATE BANK USSR BUDBANK (Building Bank) USSR Foreign Trade Bank

The monetary system Ukraine

There are following elements of the monetary system of Ukraine There are following elements of the monetary system of Ukraine: - The name of the currency; - The scale of prices; - Types of banknotes which have the status of legal tender; - Regulation of non-cash payments; - Regulation of cash turnover; - Regulation of the exchange rate regime and operations with currency values; - Regulation the process of banking; - Government agencies that regulate penny turnover and enforcement of existing legislation.