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Currency

Currency. By John Shi Pd. 6. What is Currency?. A System of Money in Common Use Banknotes plus coins Physical Tokens used for Money Used as a Medium of exchange Currency vs. Money. Origin of Currencies. Bartering System Commodity Money Standardized Coinage

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Currency

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  1. Currency By John Shi Pd. 6

  2. What is Currency? • A System of Money in Common Use • Banknotes plus coins • Physical Tokens used for Money • Used as a Medium of exchange • Currency vs. Money

  3. Origin of Currencies • Bartering System • Commodity Money • Standardized Coinage • http://www.youtube.com/watch?v=FuHQhGqZvY0

  4. Strong & Weak Currencies • Strong/Hard Currencies – Globally traded currency expected to serve as a reliable store of value • US Dollar, Euro, Swiss Franc, British pound sterling, Japanese Yen • Weak/Soft Currencies – Expected to fluctuate erratically and depreciate against others

  5. Reserve Currencies • Currency held by many governments as part of foreign exchange reserves • Used for pricing commodities on the global market • US Dollar used for the price of a barrel of oil • Most reserve currencies are strong currencies.

  6. Appreciation of Currency • Increase in a currency value relative to other reference currencies. • Causes: • High exports, need currency to pay for exports • Increased interest rates • Foreign exchange market • Employment increase • Effects: • Lower exports • Higher imports • Increase in supply of currency

  7. Depreciation of Currency • Decrease in a currency value relative to other reference currencies. • Causes: • Decreased demand for currency • Low interest rates • High Imports • Low exports • Effects: • Higher exports • Lower imports • Decrease in supply of currency

  8. Currency Manipulation • Freely Floating Currencies – currencies determined by market forces • Currency Manipulation – keeping currency at a set value relative to another currency • China can make its currency a set % of the US dollar to promote trade • Prevents the RMB from being a reserve currency

  9. Inflation • Rise of general level of prices in an economy over a period of time • Around 2-3% per year • Causes: • Demand Pull Inflation • Supply Shock Inflation • Monetary Supply • Wage earners + Producer Costs

  10. Inflation Cont. • Effects: • Elderly on fixed incomes • Gold Standard • Wage + Price Controls • Fixed Exchange Rates • Higher interest rates • Slow Growth of Money Supply

  11. The US Dollar • Most used in international transactions and dominant reserve currency • Used today to trade for commodities such as gold and petroleum • Created by the Coinage Act of 1792 • 1857 – Half cent removed due to high costs • 1971 – US leaves the gold standard • Believed to be an estimated $1 in counterfeit currency for every 12500 in genuine currency

  12. The Euro • 1999 – Introduced in nonphysical form • 1999 – Stability and Growth Pact passed • 2002 – Euro replaces nation’s currency • 2004 – Euro peaks in value • 2008 – First official recession of the Euro (negative growth) • 2009-2010 – Agreed Bailout of Greece and other members • Current Rate: 1 Euro = 1.3 US Dollars

  13. British Pound • 4th traded in the foreign exchange market • Oldest Traded Currency in the World • 1940 – US Agreement at Bretton Woods, 1 pound = $4.03. • 1967 – Severe Devaluation of British Currency to $2.4 • 1971- Decimalization

  14. British Pound Cont. • 1972 – Free floating pound • 1979-1989 – Conservative party enters. $2.4 -> $1.03 -> $1.7. • 1980- Recession due to high exchange rates • Current Rate: 1 British Pound Sterling = $1.52

  15. Russian Ruble • 1885 – 1 Ruble = 0.774 grams gold • 1920s- Gold Standard dropped due to WWI • 1922 – Second Ruble (1 for 10000) • 1923-24- Third Ruble (1 for 100). Issuing of the first Soviet currency • 1924-1947 – Gold 4th Ruble (1 to 50000) • 1947-1961 – Soviet attempt to reduce money in circulation (5th Ruble)

  16. Russian Ruble Cont. • 1961 – 1997 – 1 6th Ruble = 0.9874 g gold • 1991- Fall of Soviet Union, Currency stays • 1998 – 7th Ruble (1 for 1000 old) • 1 1st ruble = 2 E-6 7th Ruble • 2010- Putin and Wen Jiabao agree to use own national currency for bilateral trade over dollar • Current Rate: 1 ruble = $0.03

  17. Chinese Yuan / RMB • Referred to as “Renminbi”, “RMB”, “Yuan,” “Kuai” • 1 Yuan divided into 10 “jiao” or “mao” • 1 Mao divded into 10 fen • 1948 – First series issued by Bank of China • 1 yuan = 10000 old yuan

  18. China Yuan / RMB Cont. • 1955 – Second series of banknotes issued • Command Economy led to Unrealistic exchange rates • 1978 – Opening of Chinese Economy. RMB only used domestically • 1980s-1990s – Exchange rate brought to more realistic levels, Dual system abolished • 2005 – Fixed rate abolished • Currently 1 RMB = $0.16

  19. Chinese Currency Series • 1955 – Second Series – Featured Uyghur, Tibetan, Mongolian and Zhuang languages • 1962 – Third Series – Phased out in 1990s • 1987-1997 – Fourth Series – Still Used Today • 1999 – 5th series – Featuring Mao Zedong only

  20. Chinese Phasing Out Currency • Due to inflation, China has stopped using cent coins (1 fen, 2 fen) • Vendors now only deal in multiples of 10 cents

  21. Mexican Peso • 1863 – First issue of the Peso (of coins measured in centavos) • 1866 – Coins denominated by Pesos • Peso was used in US until 1857 • 1900s – Mexican Peso most stable in Latin America • 1970s – Severe devaluation of Currency • 1993- Second Peso (Nuevo Peso). 1 2nd peso = 1000 old pesos • 1 peso = $0.08

  22. Peso Crash • 1970s – Mexico borrowed money for industrialization • 1980s – Increased oil prices, attempt to improve oil refineries • 1989 – Interest rates in US and Europe increase • 1982 – Defaulted on external debt • Resulted in capital flight, hyperinflation and devaluation • Banks restructure their loans and IMF involvement • 1993 - Stability and Economic Growth Pact • Current Mexican Debt: $274800 Million

  23. Iranian Rial • 1798 – introduction of rial as 1250 dinar (1/8th of a toman) • 1825- Rial ceased to be used • 1932 – Rial replaces Toman at a rate of 1 toman = 10 rials • After the Islamic Revolution, Rial design removes Shah’s effigy • Reported CIA manipulation of the rial • 2002- removal of preferred rate and market rate for a market driven rate • 1 Dollar = 12275 Rial

  24. Nigeria Naira • 1973 – Introduced Naira, replacing the pound at a 2:1 ratio • Rampant Inflation over the existence of the Naira. Annual Inflation rate above 10% • 2007 – Naira appreciates against the US dollar due to high oil reserves • 2008 – Redenomination of Naira with 100 old = 1 new • 2011 – Central bank increases interest rates to 12% to reduce inflation • Foreign Currency in Nigeria regulated by local auctions, Central Bank sets exchange rate • Current Rate: 1 Dollar = 100 Naira

  25. Hyperinflation • Massive Depreciation of Currency Value • High “Unstoppable” Inflation Rates Causes: • Supply Shock • Increase in Money Supply Solutions: • Dollarization • Shock Therapy • Effects: • No purchasing power • Price Controls • Hoarding and Fleeing country

  26. Germany after WWI • Hyperinflation (1 dollar = 4 trillion German Marks) from 1921-1924 • Causes: • War debt – demanded in 1921 • Solution: Introduction of the Retenmark in 1923 (cutting 12 zeroes) • http://www.listenonrepeat.com/watch/?v=uV-GcYwCy-U#t=1m20s

  27. Date ofredenomination Currencycode Value 1 August 2006 ZWN 1 000 ZWD 1 August 2008 ZWR 1010 ZWN= 1013 ZWD 2 February 2009 ZWL 1012 ZWR= 1022 ZWN= 1025 ZWD Zimbabwean Dollar • Causes: Political Turmoil, Dollarization, Money Supply • 1980 – Highest Valued currency units: 1 ZWD = $1.47 • 2007 – ZW$600000 to 1 US Dollar

  28. Anti-counterfeiting Measures • Traditionally involves finer detail on bills • Coins are milled or reeded • EURion constellation – 1996 • Counterfeit Deterrence System

  29. State Quarters/Special Currencies State Quarters • Enacted in 1997, Quarters from 1999-2008 • 2009 – DC and US Territories program • Started to support new coin collectors • America The Beautiful Quarters – 2010 -2021 • Depicting national parks and sites • Presidential Dollars - 2005

  30. Special Currencies Cont. • Olympic Currencies – Bills made to celebrate the Olympics • 6 million Chinese bills made – 2008 • UK Olympic 50p pieces • Russian Olympic note (10 million) - 2013

  31. Melting Currency • 2006 led to a jump in metal prices: • Penny worth ~.26 cents more as metal • Nickel worth ~2.7 cents more as metal • New Mint Rules: illegal to melt coins, illegal to export to melt coins • 5 years in prison and fine of $10,000

  32. Currency Investments • 95% Copper pennies (pre 1982) worth more than pennies today • 0.02-0.03 cents for a copper penny (metal) • Price of 95% copper > copper + zinc pennies http://www.youtube.com/watch?feature=player_embedded&v=GSaJQZxhcqo 31.95 dollars for $15 worth of pennies

  33. Penny Debate US • Should we keep minting the penny or get rid of it? • For Removal: • Pennies are worthless • Wastes Taxpayer money (7.4 billion pennies made per year) and Time • Pennies < minimum wage (6.15 seconds to pick up a penny) • For Keeping It: • Prices round up • Charities need pennies • Nickels cost more to make (7.7 cents per nickel, 1.26 per penny) • Pennies are sentimental

  34. Bibliography • http://usatoday30.usatoday.com/money/2006-12-14-melting-ban-usat_x.htm • http://globalpapersecurity.com/how-the-eurion-constellation-protects-banknotes.htm • http://coins.about.com/od/uscoins/i/penny_debate.htm • http://usatoday30.usatoday.com/money/2006-12-14-melting-ban-usat_x.htm • http://en.wikipedia.org/wiki/Zimbabwean_dollar • http://en.wikipedia.org/wiki/Chinese_yuan • http://nbnl.globalwhelming.com/2008/07/18/the-very-limited-and-rare-beijing-olympic-currency-get-yours-now/ • http://en.wikipedia.org/wiki/Hard_currency • http://en.wikipedia.org/wiki/Zero_stroke • http://en.wikipedia.org/wiki/Pound_sterling • http://en.wikipedia.org/wiki/United_States_dollar • http://en.wikipedia.org/wiki/Bretton_Woods_system • http://en.wikipedia.org/wiki/Soviet_ruble • http://useconomy.about.com/od/criticalssues/p/US-Economy-Collapse.htm • http://en.wikipedia.org/wiki/Latin_American_debt_crisis • http://en.wikipedia.org/wiki/Iranian_rial • http://coinmill.com/IRR_USD.html • http://en.wikipedia.org/wiki/Iranian_toman

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