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Website #1 - Kahn Academy Functions of Money

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Website #1 - Kahn Academy Functions of Money

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The website Kahn Academy is a website that provides education information on may things. And this course went into detail about the different functions of money. There are multiple modules to this course about the functions of money. Some of the information discussed was the difference between m0, m1, and m2. They also talk about how money has evolved overtime.

I chose this website because I know that Kahn Academy is a reliable source. And They are known to provide useful information. And I also feel that the topics that they discussed about the functions of money are valuable.

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Functions of money (video) | Khan Academy

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Learn for free about math, art, computer programming, economics, physics, chemistry, biology, medicine, finance, history, and more. Khan Academy is a nonprofit with the mission of providing a free, world-class education for anyone, anywhere.

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The video delves into what money is and how we use it. The video talks about the benefits to saving money vs spending it. But it also just gives a basic overall look at the functions of money. It does not go into specifics but i think that it is a good starting point when learning about the functions of money and how it effects our daily lives.

I chose this video because I felt that it gave a easy understanding of what the main functions of money. And it gives a good overview. though the video can be a bit awkward at times I think that if you take the information learned from it and do a bit more research. The information discussed will become clear.

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What are the main Functions of Money? Money Instructor

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This video discusses some of the most important uses of money and how it effects daily life. And it also makes a point that sometimes people place to big of an emphasis on money. and they start to forget about doing things to make themselves and other happy. I think that this is an important note to make because sometimes it is not about money, but rather about the enjoyment. The video also discusses that you have to spend something to get something in return. They used the example of, "you need to spend money to buy books, and books give you knowledge". I really liked this point because it could be applied to anything in life.

I chose to include this video because I feel that it brings up some important social issues that we face today. And I think that it is important to keep in mind that not everything is about making money. And that you sometimes need to sacrifice something that you think you want, but you don't really need.

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WHAT IS THE TRUE IMPORTANCE OF MONEY IN LIFE

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Thank you for taking an interest in my wall. I will be providing information concerning the functions of money. I will provide videos, websites, and photos that best describe the primary uses of money and why it is so important.

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This image provide a more descriptive insight into the Primary functions of money. It also makes a point to show that money is not the only medium of exchange, but is the most popular.

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This video talk about what makes money valuable. And how that value is dictated. In the beginning of the video they talk about how a currencies value used to be based on a countries gold, and silver reserves. But after this was abolished money was referred to as "Fiat" currency. "Fiat" currency means that the currency is not linked to any external resource. But is dictated by government policy. I found this to be an interesting point because the traditional sense of value is place on scarcity. And money is not a scarce resource, but so many other things that effect the cost of products and services has a direct effect on the value of a currency.

I chose to include this video because it is from a reliable source. And I feel that it gives some good information that it easy to understand. And it gives you a basis on what makes money valuable.

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What gives a dollar bill its value? - Doug Levinson

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This image gives a good layout of the core functions of money. It also shows how everything is connected.

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This video discusses some of the reasons that currency fluctuates. it talks about how global trade has a big effect on the value of a counties currency. In order to trade with another country you need to first "buy" their currency in order to then purchase resources from companies in that country. This point is very important because global trade ias the foundation of everything on our world today. And without money it would not be possible. The video also talks about how interest rates can also effect a countries currency value. When countries change the amount of money being distributed throughout the country and increase or decrease interest rates. The currency will either go up or down. It is all reliant on supply & demand.

I chose to include this video because it is short and to the point. It gives a good insight into a few ways currencies fluctuate. And gives you a good understanding of the effect that money could have on daily lives if it's value is underappreciated.

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What Causes Currencies to Rise and Fall? | FX 101 (Finance Explained)

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This article posted by the Bank of Canada provides information on what money is and why we use it. The article also provides videos that delve into bank notes. They described what bank notes are and ow they are used.

I chose this article because it was posted by a reliable source. And I also feel that it provides a good insight into what the bank do and how they handle money in Canada. I also felt that in order to understand the functions of money. you first need to understand what money is.

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Here’s what money does—and how we’re handling it in the digital age.

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Website #3 - Difference Between Crypto Currency & Fiat Money

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Website #3 - Difference Between Crypto Currency & Fiat Money

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This article talks about what Crypto Currency is and how it is used. It talks about how Cryptocurrencies are digital assets that are exchanged between two individuals. It is different from traditional currency in that it is not controlled buy any one person. But the market itself. It is important to see how Crypto Currency differs from traditional currency and that it could become a primary medium of exchange in the future.

I decided to add this article because Crypto Currency is an increasing currency in our world today. And I think that it is an important topic to discuss. Crypto Currencies can come in different forms such as NFT which are essentially valuable based on the rarity and ownership. It could change the way we think about currency in general and I think that it is important to learn about.

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The difference between a cryptocurrency and fiat money

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Cryptocurrencies like Bitcoin and fiat money issued by banks are currencies - but do you also know about all the differences between crypto and fiat?

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This article talks about what Fiat Money is.  Fiat money is a money that is not effected by any outside resource. But is dictated by government policies. This means that things like interest rates, global trade, domestic business', etc. all have an effect on the value of a countries currency. This was not how it used to be. Before government decided to put this in place an countries currency value was dependent on their gold, and silver reserves. This could have negative ion countries that are not as resource rich. By shifting to Fiat money countries have a greater chance of having a stronger economy.

I decided to include this article because I think that it is important to understand how money works before understanding what it is used for. Knowing how its value is decided is important to know especially when you are in a career that deals in global trade. I also know that Investopedia is a reliable source for information.

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What Is Fiat Money?

Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it. Most modern paper currencies are fiat currencies, including the U.S. dollar, the euro, and other major global currencies.

Key Takeaways

Understanding Fiat Money

The term "fiat" is a Latin word that is often translated as "it shall be" or "let it be done." Thus fiat currencies only have value because the government maintains that value; there is no utility to fiat money in itself.

Fiat currency came about when governments would mint coins out of a valuable physical commodity, such as gold or silver, or print paper money that could be redeemed for a set amount of a physical commodity. Fiat, however, is inconvertible and cannot be redeemed simply because there is no underlying commodity backing it.

Because fiat money is not linked to physical reserves, such as a national stockpile of gold or silver, it risks losing value due to inflation or even becoming worthless in the event of hyperinflation. In some of the worst cases of hyperinflation, such as in Hungary immediately after WWII, the rate of inflation can double in a single day.

Furthermore, if people lose faith in a nation's currency, the money will no longer hold value. This is much different from a currency backed by gold, for example; it has intrinsic value because of the demand for gold in jewelry and decoration as well as in the manufacturing of electronic devices, computers, and aerospace vehicles.

History of Fiat Money in the U.S.

The U.S. dollar is considered to be both fiat money and legal tender, accepted for private and public debts. Legal tender is basically any currency that a government declares to be legal. Many governments issue a fiat currency, then make it legal tender by setting it as the standard for debt repayment.

Earlier in U.S. history, the country's currency was backed by gold (and in some cases, silver). The federal government stopped allowing citizens to exchange currency for government gold with the passage of the Emergency Banking Act of 1933. The gold standard, which backed U.S. currency with federal gold, ended completely in 1971 when the U.S. also stopped issuing gold to foreign governments in exchange for U.S. currency.

Since that time, U.S. dollars are known to be backed by the "full faith and credit" of the U.S. government, "legal tender for all debts, public and private" but not "redeemable in lawful money at the United States Treasury or at any Federal Reserve Bank," as printing on U.S. dollar bills used to claim. In this sense, U.S. dollars are now "legal tender," rather than "lawful money," which can be exchanged for gold, silver, or any other commodity.

Advantages and Disadvantages of Fiat Money

Advantages

Fiat money serves as a good currency if it can handle the roles that a nation's economy needs of its monetary unit-storing value, providing a numerical account, and facilitating exchange. It also has excellent seigniorage, meaning it is more cost-efficient to produce than a currency directly tied to a commodity.

Fiat currencies gained prominence in the 20th century in part because governments and central banks sought to insulate their economies from the worst effects of the natural booms and busts of the business cycle.

Since fiat money is not a scarce or fixed resource like gold, central banks have much greater control over its supply, which gives them the power to manage economic variables such as credit supply, liquidity, interest rates, and money velocity. For instance, the U.S. Federal Reserve has the dual mandate to keep unemployment and inflation low.

Disadvantages

The mortgage crisis of 2007 and subsequent financial meltdown; however, tempered the belief that central banks could necessarily prevent depressions or serious recessions by regulating the money supply. A currency tied to gold, for example, is generally more stable than fiat money because of the limited supply of gold. There are more opportunities for the creation of bubbles with fiat money due to its unlimited supply.

Example of Fiat Money Gone Wrong: Hyperinflation

The African nation of Zimbabwe provided an example of the worst-case scenario in the early 2000s. In response to serious economic problems, the country's central bank began to print money at a staggering pace, resulting in hyperinflation.

Experts suggest the currency lost 99.9% of its value during this time. Prices rose rapidly and consumers were forced to carry bags of money just to purchase basic staples. At the height of the crisis, the Zimbabwe government was forced to issue a 100-trillion Zimbabwean dollar note. Eventually, foreign currencies were used more widely than the Zimbabwean dollar.

Why Is Fiat Money Valuable?

In contrast to commodity-based money like gold coins or paper bills redeemable for precious metals, fiat money is backed entirely by the full faith and trust in the government that issued it. One reason this has merit is that governments demand that you pay taxes in the fiat money it issues. Since everybody needs to pay taxes, or else face stiff penalties or prison, people will accept it in exchange (this is known as Chartalism). Other theories of money, such as the credit theory, suggest that since all money is a credit-debt relation, it does not matter if money is backed by anything to maintain value.

Why Do Modern Economies Favor Fiat Money?

Prior to the 20th century, most countries utilized some sort of gold standard or backing by a commodity. As international trade and finance grew in scale and scope; however, the limited amount of gold coming out of mines and in central bank vaults could not keep up with the new value that was being created, causing serious disruptions to global markets and commerce. Fiat money gives governments greater flexibility to manage their own currency, set monetary policy, and stabilize global markets. It also allows for fractional reserve banking, which lets commercial banks multiply the amount of money on hand to meet demand from borrowers.

What Are Some Alternatives to Fiat Money?

Virtually every country today has legal tender that is fiat money. While you can buy and sell gold and gold coins, these are rarely used in exchange or for everyday purchases and tend to be more of a collectible or speculative asset. Cryptocurrencies, such as Bitcoin, have emerged over the past decade as a challenge to the inflationary nature of fiat currencies; but despite increased interest and adoption, these virtual assets do not seem to approach being "money" in the traditional sense.

Does Fiat Money Lead to Hyperinflation?

There is always the possibility of hyperinflation when a country prints its own currency; however, most developed countries have experienced only moderate bouts of inflation. In fact, having some consistent low level of inflation is seen as a positive driver of economic growth and investment as it encourages people to put their money to work rather than have it sit idle and lose purchasing power over time.

Having a relatively strong and stable currency is not only a mandate of most modern central banks, but a rapidly devalued currency is harmful to trade and obtaining financing. Moreover, it is unclear whether or not hyperinflation is caused by "runaway printing" of money. In fact, hyperinflation has occurred throughout history, even when money was based on precious metals; and all contemporary hyperinflation has begun with a fundamental breakdown in the real production economy and/or political instability in the country.

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Fiat Money: What It Is, How It Works, Example, Pros & Cons

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Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it.