EC223 Lecture Notes - Lecture 7: Cashless Society, Digital Currency
Document Summary
An effective medium of exchange must: be easily standardized be widely accepted be divisible be easy to carry not deteriorate quickly. Units in which value is denominated throughout the economy. Especially when there are many goods and services. Without a unit of account, we would need to know 45 prices to exchange one good for another. With a unit of account, we only need 10 prices as everything would be reported in dollars. Need this many relative prices in a barter economy. Other assets also serve this function (stocks, bonds, land, houses, art, jewelry, etc ) Money is the most liquid of all assets but does not pay a return, so loses value during inflation. Money is particularly poor store of value during periods of hyperinflation when inflation exceeds 50% per month. Payments system: method of conducting transactions in the economy. Paper money decreed by governments as legal tender.
