The main function of the fiat money

Topics: Money, Currency, Federal Reserve System Pages: 4 (778 words) Published: May 9, 2014
Ministry of Education and Science of Ukraine, Youth and Sports Kharkiv National University of Economics

Department of Management and Business

Essay
The main function of the fiat money

Subject:
Finance money and credit

Done by:
The second-year student of
the department of
Management and Marketing Yaroslav Buha

Kharkiv
2013

The main function of the fiat money

The fiat money has a long history of transactional use in modern society. Despite the prevalence and popularity of paper checks as well as debit and credit cards, paper money still has a prominent role in the economy. Paper money must be constantly redesigned to avoid counterfeiting, and the printing of bills is subject to political as well as economic changes. The role of fiat money is defined by both transactional use and a nation's monetary policy.

What about histiory of fiat money? So the first consistent use of fiat money can be traced to China in the 10th century. Probably due to a copper shortage, the Chinese government first printed paper bills in lieu of coins. Paper money would increase in popularity in trade between nations. By the late 19th century, Western nations such as France and Germany, along with Japan, adopted Britain's "gold standard," meaning that paper money would be backed by gold. This standardization allowed currency prices of various nations to remain relatively price stable, increasing faith in trade between countries. The United States adopted the gold standard in 1900.

Now I would like to tell about significance of this money. According to monetary historian and author Glyn Davies, money in all of its forms acts as a payment means and an exchange medium, and holds value. Paper money maintains an extensive role in developed economies in particular because of...
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