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Chapter 3

Chapter 3. What Is Money?. Meaning of Money. Money (money supply )—anything that is generally accepted in payment for goods or services or in the repayment of debts; a stock concept. Money supply is the total amount of money available in the economy. (stock)

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Chapter 3

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  1. Chapter 3 What Is Money?

  2. Meaning of Money • Money (money supply)—anything that is generally accepted in payment for goods or services or in the repayment of debts; a stock concept. Money supply is the total amount of money available in the economy. (stock) • Wealth—the total collection of pieces of property that serve to store value(stock) • Income—flow of earnings per unit of time (flow)

  3. Functions of Money • Medium of Exchange—promotes economic efficiency by minimizing the time spent in exchanging goods and services. Facilitates specialization and division of labor. A good medium of exchange • Must be easily standardized • Must be widely accepted • Must be divisible • Must be easy to carry • Must not deteriorate quickly • Unit of Account—used to measure value in the economy: assets, goods, services. • Store of Value—used to save purchasing power; allows intertemporal substitution of income • most liquid of all assets but High inflation diminishes its “store of value” function.

  4. Evolution of the Payments System • Commodity Money: Gold, Silver, other precious metals, certain stones, Cigarettes, etc. • Representative money that is backed 100 % by precious metals (banknotes) • Fiat Money: No consumption or investment use: intrinsically useless pieces of paper. • Checks • Electronic Payments: EFTs, wire trasfers. • E-money: Debit cards (POS), etc.

  5. Definitions of Money • From most liquid (narrow) to the least liquid (broad), M0, M1, M2, M2Y, M3.. • M0 = paper currency and coins • M1 = M0+ Checking Accounts+ Traveler Checks • M2 = M1 + Savings Accounts • M2Y = M2 + Forex Accounts

  6. Dollarization and Monetary Transmission in Turkey, Erdem BAŞÇI Vice Governor Central Bank of Turkey December 2006 Monetary Policy

  7. Asset Dollarization Share of FX-Denominated Deposits in Total Deposits Dollarization and Monetary Transmission in Turkey, Erdem BAŞÇI Vice Governor Central Bank of Turkey

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