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8-6 Money, Banking & Financial Institutions [CH 8

Spanish Gold: pieces of eight

Twenty Shillings and One pound note printed in Rhode Island, May 1786

inhabitants of Yap willingly traded their agriculture production, fish, pigs, goats and
cattle and even land to obtain the stones shaped like “full moons” with a hole in the
middle. The stone money came in various sizes from tiny to 9-10 feet high and
weighing several tons. These stones possessed the characteristics of money with some
weighty problems when it comes to exchange.
Exchanging money permits a unique base for purchasing power and permits
elaborate specialization. For money to be useful as a medium of exchange, it must be
acceptable, divisible, portable, durable, and to have a stable store of value. Money
should also be scarce and difficult to counterfeit.
Acceptability requires that the general population agrees that the money contains
worth for their society. The acceptance is that it will be allowed for the exchange for
goods and services. During the American Revolution the Continental Congress
Silver Dollar: 1 ounce
authorized a number of printers (including Benjamin Franklin) to print currency, called
“continental dollars,” that was to be supported by Spanish Silver doubloons and
British Silver pounds, to pay for war supplies, food, and clothing for the troops. The
currency was printed in such large quantities, and the holder could not necessarily
receive the silver that backed it, that the currency was virtually useless for purchases.
This gave rise to the expression, “That it isn’t worth a continental.”
Divisibility. Buying that additional acre for the Irish farmer using cows as the
medium of exchange posed a major dilemma. The same dilemma exists for other
Silver Quarter: 1/4 ounce farmers who use large livestock and it diminishes with geese, chickens, piglets, and
diminishes more when crops are used as money. The reason is that five sheep is
equivalent to one cow, thus divisible, and crops are measured in bushels or pounds,
and thus are more readily divisible. Another dilemma is does the seller want or need a
cow, sheep, pigs or a crop? Thus, the advantage of coinage. Gold and silver coins can
be minted in different sizes with differing values in order to facilitate exchange.
Spanish doubloons could literally be divided into eight pieces; break off a doubloon
piece (1/8) and pay for food and rum. Thus, pieces of eight, is how they became
known.
Silver Dime: 1/10 ounce Today, you go to the store and purchase a Snickers bar for one dollar and fifty
cents. You may give the merchant two one-dollar bills. You will receive in change
fifty cents. If your dollars were not divisible, you would be faced with surrendering an
additional dollar and receiving an additional candy bar. On the other hand, you could
allow the merchant to keep the extra fifty cents as additional profit. However, the U.S.

dollar is easily divisible.

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