Kick off 3/24

1.Why does our money look the way it does? (shape, designs, etc.)

2.If you could design a new dollar bill, what would it look like?

Monetary Standards

I. Monetary Standards Defined

• The mechanism for keeping the money supply – Portable– Divisible– Durable– In limited supply

II. Pre Civil War Monetary StandardsA. The Federal Government

1. Could produce only coin (commodity money)2. Not ___________ to produce paper money

B. State Banks 1. Produced their own paper currency backed by gold or silver2. Wildcat banks – banks that overproduced currency3. Problems (even with honest banks)• Too many currencies (colors, sizes, etc.)• Temptation to __________• ___________________• Trade over long distance

III. The Civil War and Monetary Standards

• Need for money to fight the ___________forced Federal Government (and Confederate Government) to print currency for the first time since the Revolution

A. _____________________(because they were green)1. No gold or silver backing2. Legal tender – must be accepted to pay debts

B. National Banking System1. People feared Greenbacks would lose value and stopped using

them2. Nationally chartered banks issued currency backed by

___________________________ • Government got money to pay for the war• Currency was __________________

3. Tax on state currency forced private currencies out of production

III. The Civil War and Monetary Standards

C. Other Currencies1. Gold certificates – paper currency backed by gold

in the __________________2. Silver Certificates – paper currency backed by

silver in the treasury and silver dollar coins

IV. The Gold StandardA. The Gold Standard Act (1900)

1. Put the US on __________standard – currency represents equal amount of gold in the treasury

2. Greenbacks and NB notes were still used

B. Advantages of a gold standard1. ___________________________________2. ___________________________________

C. Disadvantages of a gold standard1. Gold supply must match ___________________2. Mass redemption if government is not honest3. Gold price ________________________

D. Abandoning the gold standard1. Mass redemption during the ______________________2. Law requiring disclosure of possession of _________of gold 3. Gold Reserve Act 1934

• Gold _________________from citizens• Currency off the gold standard

V. The Inconvertible Fiat Standard• Fiat money that is not backed by ____________A. Managed Money Supply

1. Quantity of money in circulation is controlled by the _______________________________

2. Currency consists of coins and Federal Reserve Notes

B. Success of currency depends on:1. Portability – bills are easy to carry around2. Durability – bills and coins can withstand use3. Divisibility – any value can be made4. Limit supply • Amount is controlled by _________________policies• _______________________ are prosecuted