MONEY IN THE NATIONS ECONOMY

Money and its Evolutuion Contenintal Virginia tobacco Ancient Persia - cattle China and Ancient Greece iron Indian - cowry shells The commodity used by different countries as their medium of exchange has been influenced by a number of factors: a. Climatic condition b. Location of the community c. Degree of cultural development

ADVANTAGES ON THE USE OF METALS 1. Virtually indestructible 2. Can be melted and cast into certifiable weights. 3. Possess the attribute of portability 4. Valuable in their own right 5. Cannot be created at will 6. Metals are not only scarce but require massive exertion of labor to extract them from the bowels of the earth, and refine, and therefore have a floor value.

SIGNIFICANCE OF COINAGE 1. It is a symbol of the state. 2. It is an absolute monopoly of the government. 3. It is the exclusive prerogative of the government. 4. Money is both essential and indispensable to the full development of trade.
MONEY AND PRODUCTION With the money, the individual contributes to production.

FUNCTIONS OF MONEY 1. As a Medium of Exchange

2. As a Unit of Account (measure or standard of value) 3. As a Store of Value 4. As a means of deferred payment

CHARACTERISTICS OF GOOD MONEY 1. Money must possess general acceptability. 2. Portability 3. Cognizability 4. Durability 5. Divisibility 6. Malleability 7. Convewrtibility

KINDS OF MONEY 1. Commodity Money. Appears in metallic form, the face value of which approximates that of the value of the metal itself. It possesses intrinsic value, it could be used as either commodity (bullion) or as a medium of exchange (money). 2. Credit Money. In the form of promissory note. 3. Paper Money 4. Fiat Money. It is not convertible into other forms of money. It is issued by financially embarrassed government. It is also called as inconvertible paper money Legal Tender. Any kind of money which, according to law, must accepted when offered in payment of any obligation expressed in terms of the countrys monetary unit.

CHAPTER 3

MONETARY STANDARDS

 OBJECTIVES OF THE STUDY At the end of the discussion, the students are expected to: 1. Know the Philippine monetary standards and the monetary systems. 2. Discover the Significance of Monetary Standard. 3. Determine the Types of Monetary Standards

MONETARY STANDARD A particular kind or type of standard money used in the monetary system of a country to which other kinds of money are related. It consists of all forms of money, created and regulated by law, that are necessary to achieve the functions that money is designed to perform. It embraces the entire monetary system having for its foundation a particular standard of value. It includes within its scope, not only a designation of standard of value, but, moreover, all regulations and arrangements of a monetary character; such as provisions governing the issuance

of coins, paper money, bank notes, as well as those regulations concerning the buying and selling of precious metals principally gold, including their exportation and importation. SIGNIFICANCE OF MONETARY STANDARD 1. It is made to serve the domestic requirements of a country. 2. Owing to the fact that countries of necessity trade with other countries, it is necessary for a country to take into account not only its domestic needs but also those of international trade.

TYPES OF MONETARY STANDARDS 1. Commodity Standard. Is one in which the value or purchasing power of the monetary unit is kept equal to the value of a designated quantity of a particular commodity or group of commodities. 2. Non-commodity standard or Fiat standard. Is that kind of monetary system, in which the value of the purchasing power of the monetary unit is not kept equal to the value of a specific quantity of a particular commodity or group of commodities.

MONOMETALLIC STANDARD The most commonly known monometallic standard are gold and silver standard which have intrinsic value which render their greater acceptability, their values does not fluctuate and their purchasing power becomes assured. A. GOLD STANDARD When a government issued only as much paper money as it can back up with gold coin or gold bullion. Is a monetary system in which the standard economic unit of account is a fixed weight of gold.

THE ESSENTIAL CHARACTERISTICS OF A GOLD STANDARD 1. The unlimited right to convert gold bullion into money. 2. The right to convert money, both currency and coin, into gold bullion into industrial purposes. 3. The right to export gold for conversion into foreign currencies.

THREE MAJOR TYPES OF GOLD STANDARD 1. Gold Coin Standard. Under the gold coin standard, gold coins of a certain weight and fineness are the standard monetary units. 2. Gold Bullion Standard. a gold standard under which the coinage and circulation of gold is usu. prohibited but the shipment of gold in international transactions is permitted and a gold bullion reserve is maintained as a support for the currency. 3. Gold Exchange Standard. Exists only when a country buy and sells to its citizens foreign exchange of a gold standard country at a rate fixed in terms of domestic non-gold standard country.

Bimetallism Is a monetary system where gold and silver are freely coined and made monetary standard units. Fiat Standard Refers to a monetary system in which the face value of the monetary unit is very much higher than that of the value of the material used as money. This maybe made of paper or any cheapest material. Fiat Money. Money which has no intrinsic value and cannot be redeemed for specie or any commodity, but is made legal tender through government decree. All modern paper currencies are fiat money, as are most modern coins. The value of fiat money depends on the strength of the issuing country's economy. Inflation results when a government issues too much fiat money

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Essential Characteristics of Fiat Standard A unit of fiat money is adopted as the standard unit of value. The standard fiat money is made full legal tender. All credit money issued by the government and the central bank as well as all other legal tender money are redeemable or exchangeable in the standard fiat money. Ways to test if money is Fiat or Not The value of the money is very much higher than the value of the material used as money. The money does not represent a promise to pay some other forms of money.

Fiat Money has Intrinsic Value due to the following reasons: 1. Fiat money possesses legal tender power. 2. It performs a function as a medium of exchange or a form of payment. OTHER STANDARDS 1. Multiple or Tabular Standard. This is a plan to secure an unvarying standard of deferred payments. 2. Compensated Dollar Standard. The value of the dollar should be redefined periodically; that is its value should be revalued as often as maybe necessary.