2.  3 basic functions 1. Medium of exchange for goods and services 2. Store value 3. Standard value – measures values of goods and services

3.  Stable in value (scarce)  Accepted  Divisible  Portable and Durable

4.  Why did it start? ◦ To many creating their own currency To many creating their own currency  When did it start? ◦ Civil War and the National Banking Act of 1863  Use of gold & silver unreliable ◦ As price changed, coins worth less or more  1900 Gold Standard adopted  1970s inflation = dollar less than the gold ◦ Nixon Shock in 1971 cancelled convertibility of USD to gold

5.  Fiat Currency ◦ Unbacked by any physical asset ◦ Only worth something as a medium of exchange  $5 Security Features $5 Security Features ◦ Other bills Other bills  Currency Converter Currency Converter  Who controls the US currency

6.  Central Banking organization created by Congress in 1913 ◦ Part but separate from government  12 Districts with 25 branches Virtual Tour of Chicago

7.  Run by Board of Governors chosen by President and approved by Congress  Chairperson is ◦ Ben Bernanke

8.  Clears Checks  Acting as the Federal Government’s Fiscal Agent (Government’s Bank)  Supervises Banks  Regulates Nation’s Money Supply – Goal is stability ◦ Buy/Sell Government Securities ◦ Monetary Policy: control supply of credit by raising and lowering interest rates ◦ Government controls through Fiscal Policy: Spending and taxation to control money supply  Setting Reserve Requirements: Money banks hold  Supply paper currency