Chapter 11 Section 2. National Banking System ► System of banks (national banks) operated by the federal government. ► All issued the same national currency.

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Presentation transcript:

Chapter 11 Section 2

National Banking System ► System of banks (national banks) operated by the federal government. ► All issued the same national currency or National Bank notes. Up until this point banks issued this own money.

Gold Certificate (1863) were paper money backed by gold held by the U.S Treasury.

Silver Certificate (1886) were paper currency backed by reserves of silver.

Treasury coin notes (1890) were paper money that people could exchange for gold or silver.

The Gold Standard ► All money could be traded for GOLD. ► Set a price for gold that could not be changed. ► Advantages  Can trade for gold which creates trust  The government can only print as much paper money as it has gold to back it.

The Gold Standard (cont) ► Disadvantages  Low supplies of gold can hold back economic growth.  A sudden demand for gold can use up the gold that the government holds in reserve  Price of gold must remain constant. In a free market economy, the price of gold changes.

Inconvertible Fiat Money Standard ► Basically what we have today. ► Cannot demand gold or silver for your paper currency. ► Government controls the money supply, issuing a single currency through the Federal Reserve System. ► As more money ends up in circulation, this can lead to inflation.