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CH 8] Business 101 8-7

Today the U.S. dollar can be converted into 100 pennies, 20 nickels, 10 dimes, two
fifty cent pieces and 4 quarters. Similarly, the British pound is worth 100 pence, the
Euro dollar is divisible as 50 cents, 20 cents, 10 cents, 5 cents, 2 cents, and 1 cent.
When the United States finalized that the silver dollar was to contain one ounce of
silver, then it was easily divisible for the quarter to contain one-quarter ounce of silver,
and the dime to weigh one-tenth of an ounce, containing one-tenth of an ounce of
silver.
It is easy to recognizes that these divisions allow for goods to be more easily
exchanged.
Portability. In days gone by, the farmer could herd his cattle, swine or geese to
market, or haul his pumpkins and grain in carts. Indeed, these are uniquely portable.
The round money stones for the Yapese was often placed at the door of its owner, so
that his individual wealth was known to all who passed by. The Yap stones were made
round with a hole in the middle which was characteristic of their difficult portability—
in turn the process of trading the stones for needed goods and services was at least
cumbersome.
Of course, modern paper currency and coins are the most common forms of money
throughout the world. Currency is lightweight, which facilitates its portability. Paper
currency is easily folded and carried and coins can be carried in your pocket or coin
purse. United States paper currency is printed in denominations ranging from $1 to
$100,000; the highest common printing is the $100 bill.
Durability. The monetary system using butter or cheese faces the durability Yap Money Stones
problem as an issue of shelf life in a matter of weeks. A herd of cattle out on the range
establishes wealth for their owner unless they die, are driven off, or rustled. Money
that does not last as it is exchanged cannot act as effective store of value. The typical
dollar bill changes hands 400 times during its lifetime, staying in the average person's
pocket or purse less than two days. Although coins and paper currency do wear out
over time, they are replaced easily with new crisp paper bills and shiny coins. The
average life of the U.S. dollar bills is 18 months and can be folded several thousand
times without tearing.
Stable store of value. If the value of money is not stable, people will lose faith in $50 — 2004 version
it, and will be less willing to accept it in trade for goods and services. A stable store of
value is a function government and banking policies to print money. A nation’s money
loses value when it is inflated (government prints excess amounts and puts it in the
market place). Inflation is a serious concern for governments. As people fear that the
money will lose its value, they will look for safer means of storing their wealth. When
inflation ran rampant in Argentina, the people abandoned the Argentine peso and
engaged in a barter system or resorted to using another country’s currency such as the
U.S. dollar. Using a barter system stunts economic growth because of the $50 — 1996 version
inefficiencies of barter, and using other nation’s currencies are in insufficient supply
for normal economic growth.
Scarcity. Scarcity does not mean that money needs to be rare as with numismatics
or stamps. Rather the supply of money should be controlled and limited to avoid
inflation. Money cannot be unlimited, “grow on trees,” or it will have little store of 8
value. Governments will also go to great lengths to prevent its currency from being
counterfeited.
Difficulty to Counterfeit. Hold a Federal Reserve dollar bill to the light and you
will notice small red, blue and green silk threads imbedded in the paper. On five, ten,
twenty, fifty, and hundred-dollar bills is imbedded a metal strip with the currency
value imprinted. The purpose of these threads and metal strip is to make counterfeiting
difficult. This strip can be electronically detected during transport. Theft of currency
plates from a government mint is a common plot element for espionage and mystery
novels and movies because the production and distribution of counterfeit money could
undermine a nation's monetary system by devaluing the value of legitimate money
(inflation). For this reason, all governments make counterfeiting a serious crime and
take elaborate steps to prevent it. A new one-hundred dollar bill was introduced in
1996 to thwart counterfeiting. Counterfeit one-hundred dollar bills are being
distributed in the Middle-East, Asia, Africa and Europe. All major U.S. bills have been
changed again beginning in 2002.

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