ECON 2513 Lecture Notes - Lecture 4: Fiat Money, Commodity Money, Financial Centre
17 Oct 2018
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Purpose of money: medium for transactions, unit of account, store of value. In some cases other tokens/ things are used. Cigarettes in europe after world war 2. Cigarettes, stamps, coffee or cans of fish in prisons. If value of metal-based coins scale with weight, then big coins/ amount are extremely heavy and small coins quite small (and therefore costly to mint) Traders start to issue bills of exchange. Allow long-distance transactions without need to ship metal. Coins with a face value higher than metal content. Paper money (potentially convertible into backing commodity, usually gold or silver) 19th century saw a range of different monetary systems used in different countries. Second half of the century saw movement towards a globally standardized system around the gold standard. London as practical centre due to status as dominant financial centre. International capital market integrations led to common shocks. Assume country and trading partners have a gold-based currency (and thereby fixed exchange rates)
