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1、1,Chapter One Money & Monetary System,2,Sketch of Chapter One,S.1.Overview of Money,S.2.Functions of Money,S.3.Forms of money,Meaning of money,S.4.Monetary system,Standard of value,Means of exchange,Means of store,Means of payment,Commodity money,Representative money,Credit money,Electronic money,Ex
2、tension of money,Narrow money,Broad money,Basic elements of monetary system,Types of monetary system,Metallic standard,Credit money standard,Chinas monetary System,Emergence of money,Money and economy,3,1.1.Meaning of money Money is anything that can be generally accepted in payment for goods and se
3、rvices or in the repayment of debts. There is difference between the two terms: currency and money Money = Currency + deposits,S.1. Overview of Money,4,S.1. Overview of Money 1.1.Meaning of money,wealth - money Wealth includes not only money, but also other assets, such as bonds, stocks, art,land,ca
4、rs , houses, etc income - money Income is a flow of earnings per unit of time. Money is a stock.It is a certain amount at a given point in time.,5,S.1. Overview of Money 1.2. Emergence of money,Money is the product of development of commodity exchange. 1,Direct exchange -barter Double coincidence of
5、 wants (双边一致的交易需求) It refers to the case in which the want of either side should be coincided with that of the other side in commodity exchange. 2,Indirect exchange,6,S.2.Functions of Money,Standard of value Means of exchange Store of value Means of payment World money,7,S.2.Functions of Money,Stand
6、ard of value 1.When money functions as standard of value , It is abstract .It should be carried out through price standard. 2. Price is the expression of value of goods in units of money and affected by three factors: the value of goods, the quantity of money and the value of money-purchasing power:
7、 P=1/pp,8,S.2.Functions of Money,Purchasing power: PP refers to the amounts or numbers of commodities or services each unit of currency can purchase.,9,S.2.Functions of Money,Means of exchange The formula of the law of money circulation: M=PQ / V M: Necessary quantity of money as means of exchange.
8、P:Price level . Q:quantity of goods and services V: Velocity of money( the average number of times per year that the money is used in making payment for final goods and services.,10,S.2.Functions of Money,Means of exchange 1,Commodity circulation: It refers to the continuous commodity exchange with
9、money used as medium. 2, Money circulation:It refers to the movement of money as means of exchange shifting from buyers to sellers in commodity circulation. 3,The relation between C.C and M.C. M.C. is caused by C.C. Without C.C. there would be no M.C. which should meet the objective demand of C.C M.
10、C. serves C.C. and is the expression of C.C,11,Store of value 1. Money can function as store of value well only when its value or pp is stable . 2.Its the liquidity that makes people hold money as store of value even if money is not the most attractive one. Liquidity: refers to the easiness and spee
11、d that assets can be converted into cash at the lowest cost.,S.2.Functions of Money,12,Means of payment Money plays the function of means of payment in the unilateral transfer which refers to the transfer of money without any equivalent good or service accompanying. 1, It is directly related to comm
12、odity exchange. When goods are sold or bought on credit money will be paid afterwards. 2,It has gone beyond commodity exchange in such payment as credit payment, tax payment ,donation, war indemnity, wages, etc.,S.2.Functions of Money,13,S.2.Functions of Money,World money Its only the extension of t
13、he functions of money beyond a national boundary.,14,S.2.Functions of Money,Standard of value - Unit of account Means of exchange-Medium of exchange Store of value-Store of value Means of payment-Standard of deferred payment,15,S.3. Development of money 3.1. Forms of money,Commodity money-Metal mone
14、y Representative money Credit money Electronic money,16,S.3. Development of money 3.1. Forms of money,Commodity money-Metal money Full-bodied money It refers to the precious metal coins that contain the same value in metal as their face value.,17,S.3. Development of money 3.1. Forms of money,Credit
15、money Its a kind of credit certificate that serves as means of exchange and means of payment . The features of credit money 1)It shows the relationship of credit. 2)Money is put into circulation through businesses of financial institutions; 3)It has no relation with gold and its issuance is backed b
16、y reserves, including foreign exchange and securities.,18,S.3. Development of money 3.1. Forms of money,Electronic money It refers to depository money stored and processed through computer system , such as Electronic Funds Transfer System(EFTs).It usually takes two forms: one is various plastic card
17、s, such as credit cards, debit card; the other is bank accounts on internet.,19,S.3. Development of money 3.2. Extension of money,1, The general measure of money The narrow money: M0 and M1 M0: the cash or currency in circulation M1= Mo+ Dd, The broad money : M2 & M3 M2 = M1+Ds+Dt M3= M2 + other ass
18、ets ( such as T-bills, commercial paper,etc.) quasi-money or near-money,20,Dd: These deposits may be withdrawn on demand. The depositor usually utilizes a check to request the bank to make payment. So it is also called checkable deposits. Ds : Such deposits have no check-writing privileges , may be
19、withdrawn on demand and pay interest. They are symbolized by a little passbook in which transactions and accrued interests are recorded. Dt :Such deposits have legal maturity date and cannot be transferred to others by writing checks.They can not be drawn before the maturity date, if so, there will
20、be interest penalty on it . As they are less liquid and less likely to be withdrawn than savings deposits, banks pay a higher interest rate on them.,21,S.3. Development of money 3.2. Extension of money,2. How is money measured? 1) The foundation of measurement of money is their liquidity. M1M2 and M
21、3 are arranged in the descending order of liquidity Cash Dd Ds Dt Bonds Stock Real estate 2) Whether money has direct purchasing power is the boundary of the narrow and broad money.,22,S.3. Development of money 3.2. Extension of money,3, The meanings for different measures of money: First, to find t
22、he correlation between each measure and economic activities. Second, to monitor the operation of macro-economy and conduct monetary policy through regulating different measures of money.,S.3. Development of money 3.2. Extension of money 4, , Money measures of different countries 1) Measures of money
23、 in the US,24, Money Market Deposit Account (MMDA 货币市场存款帐户) is an account that combines savings and investment and provide check-writing privileges, and can therefore be used for transaction purpose Money Market Fund Shares (MMMF货币市场基金)absorb small amounts of funds from the public by issuing fund sh
24、ares and then invest funds collected mainly in short-term securities in the money market .The holders of fund shares can not only get returns from investing in funds , but also are able to write checks against their shares.,25,S.3. Development of money 3.2. Extension of money 4, Money measures of di
25、fferent countries,2) Measures of money in the UK M1= Currency+Pound demand deposits held by the private sector M2 =Currency +Small Pound demand deposits held by the private sector and other deposits M3 of Pound= M1 + Pound time deposits held by the private sector+ Pound deposits by the public sector
26、 M3 = M3 of Pound + other currency deposits held by British residents,26,S.3. Development of money 3.2. Extension of money 4, Money measures of different countries,2) Measures of money in the UK PSL1 = M3 of Pound held by the private sector+ Treasury bills held by individuals + Deposits held by indi
27、viduals in local financial institutions+bankers Acceptance. PSL2 = PSL1 +various liquid assets including National savings bonds+ deposits held by private sector with building society and national savings banks,27,S.3. Development of money 3.2. Extension of money,3)Chinas measures of money M0 = Curre
28、ncy in circulation M1 =M0+Dd M2 = M1 + household deposits+ time deposits of enterprises and institutions+trust deposits+ foreign currency deposits + shareholders margin accounts M3 = M2 + financial bonds + commercial paper + negotiable CDs+other assets,28,S.4. Types of Monetary System,4.1. Basic ele
29、ments of monetary system 1, Determination of money materials and units. 2, Capacity of money for payment. 3, Regulation of coinage and issuance of standard money. 4, System of reserves.,29,4.2. Types of monetary system,The Silver Standard,The Bimetallic Standard The Metallic Standard,The Gold Standa
30、rd The Gold Exchange Standard,The Gold Coin Standard,The Gold Bullion Standard,The Credit Money Standard,Monetary standard,Parallel Standard,Double Standard,Lame Standard,30,4.2. Types of monetary system 1, The Metallic Standard,1) The Silver Standard It was based on silver and silver coins was the
31、standard money and could be minted and imported and exported freely. Shortcomings: the value of silver was low,the price of silver was not stable and silver was in short supply.,31,4.2. Types of monetary system 1, The Metallic Standard,2)The bimetallic Standard (16th -18th) It was the monetary syste
32、m based on both gold and silver. It includes Parallel Standard, Double Standard and Lame Standard.,32,4.2. Types of monetary system 1, The Metallic Standard,1)Bimetallic Standard (1) Parallel Standard It refers to the monetary system under which gold and silver coins circulated according to their re
33、al value respectively. The disadvantage of it was that a commodity had dual prices in terms of gold coins and silver coins.The ratio of dual prices of commodities often fluctuated with changes of market prices of both gold and silver.,33,4.2. Types of monetary system 1, The Metallic Standard,1) Bime
34、tallic Standard (2)Double Standard Under the system gold coins and silver coins circulated according to the ratio between the two metals stipulated by government laws. The advantage was the ratio of the two was not subject to market fluctuation of prices of both gold and silver. The disadvantage was
35、 there existed Grahams Law that bad money drove good money out of circulation when market prices of both gold and silver deviated from the official ratio between the two metals.,34,4.2. Types of monetary system 1, The Metallic Standard,1) The Bimetallic Standard (3)The Lame Standard Under the system
36、 both gold coins and silver coins were standard money,but not on the equal footing.Only gold coins could be minted freely while silver coins could not, there was a restriction of amounts on silver coins in payment each time and silver coins became minor coins.,35,4.2. Types of monetary system 1, The
37、 Metallic Standard,2) The Gold Standard (1) The Gold Coin Standard It was a system based on gold. The basic features of it is as follows: A.Gold coins that were stipulated certain weight and fineness of gold was standard money in circulation. B.Gold coins could be minted freely. C. Gold and gold coi
38、ns could be imported or exported freely. D.Bank notes could be converted into gold or gold coins freely.,36,4.2. Types of monetary system 1, The Metallic Standard,2) The Gold Standard (2) The Gold Bullion Standard The basic feature of it were:bank notes that had certain gold content set by the law c
39、irculated and could only be converted into gold bullion under certain condition.,37,4.2. Types of monetary system 1, The Metallic Standard,2) The Gold Standard (3) The Gold Exchange Standard Under the system bank notes could be exchange for foreign exchange that could be converted into gold. The bas
40、ic feature of it were: the bank notes of the country under the Gold Exchange System circulated and peg to the currency of another country adopting the Gold Coin Standard or the Gold Bullion Standard.,38,4.2. Types of monetary system 2, Inconvertible Credit Money Standard,It is a system based on inco
41、nvertible credit money. The features of it are: First, Money is all credit money composed of cash and deposits which embody a relation of credit. Second, Credit money has no relation with gold and cant be converted into gold. Third, Credit money is put into circulation all through financial institut
42、ions businesses. Fourth, National government maintain a stable money circulation through regulating and controlling money supply, further macro economy.,39,4.2. Types of monetary system 3,Chinas Monetary System 1, RMB is the sole legal tender or standard money on the mainland of China 2, RMB is an i
43、nconvertible money and is independent money. 3, RMB is composted of currency and bank deposits. The issuance of RMB is centralized with the PBC and depository money is put into circulation though banking businesses. 4. In China we have special monetary system “ one country , two systems”.,40,Summary
44、 1,Money has four main functions :standard of value, means of exchange, store of value, means of payment . 2, In history there have appeared various kinds of money, such as commodity money, representative money, credit money and electronic money. 3,Money supply refers to the collection of all kinds
45、of money in an economy:currency,deposits and other assets . 4,Most countries in the world have undergone roughly the silver system, the bimetallic system, the gold system and the present inconvertible credit money system.,41,Review Key concepts Money, purchasing power of money, liquidity , credit money , electronic money , money circulation, commodity circulation, monetary system , standard money, fiat money , legal Tender, Gold Standard , Bimetallic Standard, unlimited power of legal tender, Grahams Law quasi money, M1,M2,M3.,