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Coins at first coins were a form of commodity money

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eventually these became gold and silver coins. Coins At first, coins were a form of commodity money, since they were made if precious metals such as gold and silver that could be melted down and had intrinsic value apart from its use as money. As shown below, the first coins 32
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Econ 350 U.S. Financial Systems, Markets and Institutions Class 4 in the Western world were produced in Lydia in the 600s B.C. Eventually, coins became a form of fiat money, as the current coinage system in the United States since 1964 for dimes, quarters, and half-dollars and 1981 for pennies. Fiat money Gold and silver coins were still difficult to carry in large quantities, and may not have been appropriate for small purchases. So fiat money evolved over time to further reduce the transactions cost of exchange. Fiat money is an asset that is acceptable because the government says it is, or by government fiat. It is also known as fiduciary money. At first, paper currency may have represented a certain value of a commodity, such as tobacco or silver. Over time, this practice ceased so that now most paper currencies are true fiat money, having no other intrinsic value. If you examine the front of a dollar bill, it says “This note is legal tender for all debts, public and private. That means that we are all obligated to accept those pieces of paper in payment. Please see the next page. Checks One problem with fiat money was that there was no protection against theft or loss. This problem became more acute as the distance between buyer and seller increased. One way of solving this problem is through the use of a check, which can only be cashed by one person and so is more difficult to steal. Checks began to grow as a means of payments in the United States after the Civil War. Electronic money We are in the midst of another step in the evolution of the payments system, the gradual movement toward electronic money. Electronic money includes such payment systems as ATFs (Automatic Transfer of Funds), debit cards, stored value cards, Paypal, and electronic checks. Electronic money frees the buyer and seller from the necessity of geographically transferring the payment. Funds can be transferred electronically between any two points in the world instantaneously. Electronic money frees exchange from the restrictions of time and place. Once again we see an evolution which helps to reduce the transactions cost of exchange. We are only beginning to grasp the importance and implications of the shift toward electronic money. In the way 33
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Econ 350 U.S. Financial Systems, Markets and Institutions Class 4 that the automobile changed the 20 th century, electronic money and the internet will change the 21 st century. This very course, the fact that we are all sitting around in different parts of the country (and world) communicating with each other, is a profound example of the changes yet to come. The effects on our society, politics, culture and environment remain to be seen.
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