1

Money

Economics 120

The Barter System

• Barter is the process by which goods and services are exchanged without the use of money.

• Barter systems are still in use today in less-developed countries.

• If you have an item to trade, you have to find someone willing to sell the item you want.

• Divisibility is a problem, not always possible to divide many items up into smaller units

• Difficult to express values or prices in a barter system.

History of Money

• Cattle and Grains

– One of the first forms of money was cattle because they had value.

– Cows could be used for food and the skins used for clothing.

– Grains (like corn) have been used for currency. The advantage is that it is easier to divide into small amounts.

– In some states, corn was made legal tender.

History of Money

• Metals and Minerals– Many minerals such as diamonds, silver, gold

and copper have been used as money.

– As long as something has perceived value, it can be used in exchanges.

– There were problems connected with weighing the metals and minerals to determine exact amounts.

History of Money

• Coins– The problem of weighing was resolved

through the introduction of coins made of various metals.

– The coins were stamped with the weight of the metal to eliminate the weighing.

– Since anyone could make a coin, there were many in circulation and no one was sure of the exact value.

2

Money Today

• Coins in use today are referred to as “token money”. The metallic value of the coin is less than the face value.

• People who started accumulating money wanted a safe place to store it.

• People started to store money in vaults and receive a receipt. This was the beginning of banking.

Money Today

• To pick up the money they would use the

receipt to get their money, or use the receipts in transactions. This was the

beginning of paper money.

• Coins in use today are referred to as

“token money”. The metallic value of the coin is less than the face value.

Money Today

• People accept paper money because they

believe it has value.

• Our paper currency is referred to as “fiat

money”. It is money because it has been declared to be money and is accepted as

such. It is not matched by holdings of gold or other securities.

For Currency to Circulate

• Durable

• Portable

• Divisible

• Recognizable and readily accepted

• Not easily copied

• Face value greater than actual value

Money in Canada

• Most recognizable form of money in Canada is paper money.

• Paper notes are referred to as legal tenderand must be accepted as a medium of exchange.

• As long as Canadians are willing to accept paper money, the notes will continue to circulate as money.

Money in Canada

• Paper notes are issued by the Bank of Canada.

• Coins are issued by the Royal Canadian Mint.

• Final form of money in Canada is bank deposits. It is possible to buy items with a cheque, so a cheque is a form of money.

3

Money in Canada

• The Bank of Canada is concerned with

how much money is in Canada at any given time – money supply.

• Money supply reflects the total purchasing power available in a country at any given

time including coins, currency in circulation and bank deposits.