Types of Money | Commodity, Representative, Fiat, and Bank | Money Instructor
Summary
TLDRThis script explores the concept of money, distinguishing between two main types: commodity money, which has intrinsic value like precious metals, and fiat money, which is government-authorized and lacks intrinsic value. It also touches on representative money, a precursor to fiat, and bank money, which includes checkable deposits. The script highlights the importance of acceptance in defining money and the potential issues with inflation and fluctuation in commodity money.
Takeaways
- 💼 Money is a medium of exchange used for the transfer of goods or services and can take many forms.
- 🏵️ Commodity money has intrinsic value, such as precious metals like gold and silver, and serves as both a medium of exchange and a store of value.
- 🔍 The value of commodity money can fluctuate unpredictably, affecting its reliability as a stable currency.
- 🌐 Early forms of money in the United States included gold, which led to inflation after significant gold discoveries.
- 🐎 Lower quality commodities could drive higher quality ones out of circulation due to the variability in commodity money's value.
- 📜 Representative money is a token or certificate exchangeable for the underlying commodity, like gold, and was a precursor to modern currency.
- 💼 Fiat money is the current form of currency used in modern economies, authorized by governments and not necessarily having intrinsic value.
- 📈 Fiat money's value is based on government decree and public trust rather than the material it's made from.
- 🏦 Bank money refers to the credit banks offer to depositors and is used for transactions without the need for physical currency.
- 📊 Acceptance is the key factor that makes something money; even fiat money is accepted as long as it maintains public trust and isn't over-issued.
- 🔎 If too much money is printed, leading to rapid devaluation, people may seek alternative forms of currency.
Q & A
What is the definition of money according to the script?
-Money is any good that is used widely and accepted in transactions involving the transfer of goods or services.
What are the two main categories of money mentioned in the script?
-The two main categories of money are money with intrinsic value and money without intrinsic value.
What is commodity money and what are some examples?
-Commodity money is money with intrinsic value, such as precious metals like gold and silver, which have the same value as the money they represent due to their intrinsic worth.
Why was the value of commodity money considered to fluctuate unpredictably?
-The value of commodity money can fluctuate unpredictably because it is tied to the market value of the underlying commodity, which can change over time.
What was one of the drawbacks of using commodity money like gold in the United States?
-One drawback was that gold discoveries, such as those in California, led to an increase in the quantity of money, resulting in severe bouts of inflation.
What is representative money and how does it differ from commodity money?
-Representative money is a token or certificate that can be exchanged for the underlying commodity, like gold. It differs from commodity money in that it is a substitute for carrying the actual commodity, making it more convenient to use.
Why did people start to trust paper certificates more than gold over time?
-People started to trust paper certificates more than gold because they were easier to carry and use in transactions, and they were backed by the gold stored in vaults.
What is fiat money and how does it differ from representative money?
-Fiat money is money that an authority, usually a government, has authorized to be used as a means of exchange without necessarily having intrinsic value. It differs from representative money in that it does not have to be backed by a commodity.
What is bank money and how is it used in transactions?
-Bank money is the amount of book credit banks offer to depositors. It is used to make transactions using forms of money with no intrinsic value, such as checkable deposits and travelers checks, which serve as a means of exchanging money.
Why is acceptance the main factor that makes something money?
-Acceptance is the main factor because even fiat money issued by the government is accepted as long as it is trusted and not printed excessively, which maintains its value and utility in transactions.
What happens when too much money is printed by the government?
-When too much money is printed, it can lead to a decrease in the value of the currency due to inflation, and people may start searching for alternative forms of money.
Outlines
💰 Introduction to Money Types
This paragraph introduces the concept of money, explaining it as any widely accepted good used in transactions for goods or services. It distinguishes between two main categories of money: commodity money, which has intrinsic value (e.g., precious metals like gold and silver), and money without intrinsic value. The paragraph also touches on the historical use of commodity money in Greece and the United States, highlighting the issue of value fluctuation and the problem of 'Gresham's Law,' where lower quality commodities can drive higher quality ones out of circulation. Additionally, it introduces the concept of representative money, which acts as a token or certificate exchangeable for the underlying commodity, like gold.
📜 The Evolution of Money: From Representative to Fiat
This section delves into the evolution of money, starting with representative money, which was backed by physical commodities like gold but was more portable and convenient than the commodities themselves. It then discusses the transition to fiat money, which is currently used in modern economies and does not have intrinsic value. Fiat money's value is derived from government authorization and public trust. The paragraph also explains bank money, which is the credit offered by banks to depositors and used for transactions through checkable deposits and similar instruments. The importance of acceptance in defining what constitutes money is emphasized, noting that even fiat money is accepted because of its widespread recognition and use.
Mindmap
Keywords
💡Money
💡Intrinsic Value
💡Commodity Money
💡Representative Money
💡Fiat Money
💡Legal Tender
💡Bank Money
💡Inflation
💡Gresham's Law
💡Acceptance
💡Debit Card
Highlights
Money is defined as any good widely accepted in transactions for the transfer of goods or services.
There are two main categories of money: with intrinsic value and without intrinsic value.
Commodity money, such as precious metals, has the same value as the money it represents due to its intrinsic worth.
Commodity money serves as both a medium for exchange and a storehouse of purchasing power.
Greece had some of the earliest gold and silver coins, representing an early form of commodity money.
Commodity money's value can fluctuate unpredictably, affecting its reliability as a currency.
In the U.S., gold discoveries led to an increase in money supply and severe inflation.
Variability in commodity money can lead to 'Gresham's Law,' where lower quality commodities drive higher quality ones from circulation.
Representative money is a token or certificate exchangeable for the underlying commodity, such as gold.
Paper certificates backed by vaulted gold were trusted as much as, or more than, the gold itself.
Fiat money, used in modern economies, does not necessarily have intrinsic value and is authorized by a governing authority.
Fiat money's value is derived from its acceptance as a means of exchange, rather than material worth.
Bank money refers to the credit banks offer to depositors and is used for transactions without intrinsic value.
Bank money includes checkable deposits and travelers checks, serving as a means of exchanging money.
Acceptance is the key factor that makes something money; fiat money is accepted as long as it is not over-issued.
Over-issuance of money can lead people to seek alternative forms of currency.
Transcripts
[Music]
types of money
money is any good that is used widely
and accepted in transactions involving
the transfer of goods or services
money can come in many forms but there
are two main categories of money money
with intrinsic value or money without
intrinsic value
[Music]
commodity money money with intrinsic
value is called commodity money
commodity money has the same value as
the money it represents examples are
precious metals like gold silver and
other valuable commodities
the value is what the commodity is worth
even if it's not used as money because
of its intrinsic worth it's not only a
medium for exchange but also a
storehouse of purchasing power
greece had some of the first gold and
silver coins in use
commodity money has one drawback its
value can fluctuate in an unpredictable
way in the united states gold was an
early form of money the quantity of
money went up after gold discoveries in
california and elsewhere which led to
some of the nation's most severe bouts
of inflation
however the quality of commodity money
can be a problem because of this
variability lower quality commodities
can drive higher quality commodities
from circulation
for example forces were once used as
money loan obligations were often stated
in terms of the number of forces that
had to be repaid
due to such obligations it was common
for loans to be paid back with lower
quality horses
representative money
representative money can be described as
a token or certificate that can be
exchanged for the underlying commodity
instead of carrying the gold currency
money you might keep a paper certificate
or a certificate that was backed by the
vaulted gold the certificate could be
exchanged for gold at any moment it was
also easier to carry than actual gold
and people grew to trust paper
certificates as much or even more so
than gold over time
fiat money
representative money was replaced by
fiat money which is the type that is
used today in modern economies money
does not necessarily have to have
intrinsic value fiat money refers to
money that an authority usually a
government has authorized to be used as
a means of exchange
fiat money refers to a good whose value
is lower than the money value and it has
no other value than its use as money
for example dollar bills are a type of
fiat money whose value adds slips made
of printed paper or worth less than the
value of the money
the phrase this note is legal tender for
all debts public and private is printed
on each bill we accept the value of the
currency because it's accepted by the
government and others who value it
enough to pay it
bank money
bank money is the amount of book credit
banks offer to depositors bank money is
used to make transactions using forms of
money with no intrinsic value such as
checkable deposits and travelers checks
you can pay for something by using a
check or a debit card although they can
be converted into currency they mainly
serve only as a means of exchanging
money
altogether acceptance is the main thing
that makes something money even fiat
money issued by the government is
accepted as long as it isn't printed too
fast
people will search for alternative money
if too much money is printed
[Music]
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