Tiền tệ ngân hàng FTU - Lý thuyết chương 1

Content • What is money? • Functions of money • Evolution of the payment system • Measuring money Lecture 1 What is Money? 2 Readings What is money? • Mishkin (2015), The Economics of Money, Banking, and Financial Markets, 11th edition, Pearson, Chapters 1+ 3 • Cecchetti and Schoenholtz (2014), Money, Banking, and Financial Markets, 4th edition, McGraw-Hill, Chapters 1+ 2 3 • Money (=money supply) - any vehicle used as a means of exchange to pay for goods, services or debts. – A rather broad definition • In today’s society, any asset that can quickly be transferred into cash is considered money. • The more liquid an asset is, the closer it is to money. 4 What is money? Functions of Money • Money (a stock concept) is different from: • Wealth: the total collection of pieces of proper ty that serve to store value • Income: flow of earnings per unit of time (a flow concept) • Medium of exchange • Unit of Account • Store of Value 5 Medium of exchange 6 Medium of exchange • In the barter economy where goods are traded for goods, there are very many prices (one in terms of each good); and you need to find someone willing to trade what you want for what you have to offer (double coincidence of wants) • By eliminating barter, this function of money increases efficiency in a society. • As human societies started to engage in exchange, money had to be invented. • Any technological change that reduces transaction costs increases the wealth of the society. • Any technological change that allows people to specialize also increases wealth. 7 8 Unit of Account Store of Value • We use money to measure the value of goods and services. • Suppose we had 4 goods and no money. How do we measure the price of each good? – A in terms of B – B in terms of C – C in terms of D – A in terms of C – A in terms of D – B in terms of D N!/2(N-2)! • All assets are stored value. • Money, although without any return, is still desirable to hold because it allows purchases immediately. • Although other stores of value are sometimes better than money, we hold money because it is liquid. • Other assets take time (transaction costs) to use as a payment for purchases. • Money allows to quote prices in terms of currency only. • The benefits of this function of money grow as the economy becomes more complex of exchange. 9 Store of Value • Liquidity is a measure of the ease with which an asset can be turned into a means of payment. – The more costly it is to convert an asset into money, the less liquid it is. • Financial institutions use: • The more liquid an asset is, the less transaction cost it carries. • Inflation erodes the value of money. 10 Store of Value Yugoslavia’s hyperinflation • Between October 1, 1993 and January 24, 1995 prices increased by 5 quadrillion percent. • That’s a 5 with 15 zeroes after it. – Market liquidity - the ability to sell assets for money. – Funding liquidity - ability to borrow money to buy securities or make loans. 11 12 The Payments System • The payments system is a web of arrangements that allow for the exchange of goods and services, as well as assets. The Payments System The possible methods of payment are: 1. Commodity and Fiat Monies 2. Checks 3. Electronic Payments – It is critical this functions well. • Money is at the heart of the payments system. 13 14 Commodity and Fiat Monies • Commodity monies are things with intrinsic value. – Included items like silk, butter, salt… • To be successful, must be: – Usable by most people, – Able to be made into standardized quantities, – Durable, – Easily transportable, and – Divisible into smaller units. 15 Commodity and Fiat Monies • Gold has been the most common as it meets these requirements. • In 1656, Stockholm Banco issued Europe's first paper money – King of Sweden printed too many to try to finance a war and the bank failed. • In 1775, the Continental Congress of the United States of America issues “continentals” to finance the Revolutionary War. 16 Commodity and Fiat Monies Commodity and Fiat Monies • Because of huge quantities issued, people became suspicious of government-issued paper money. • In 1862, the Confederate and the Union governments printed money with no backing. • After the Civil War, the US reverted to using gold as money. 17 Commodity and Fiat Monies 18 Commodity and Fiat Monies • Gold coins and notes, backed by gold, were used into the 20th century. • Today’s paper money is called fiat money, because its value comes from government decree, or fiat. • We are willing to accept these bills as payment because the government stands behind its paper money. • In the end, money is about trust. 19 20