The Use of Commodity Money, Other Than the USD, Is Not Controversial at All

23.10.2021
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The Use of Commodity Money, Other Than the USD, Is Not Controversial at All

Money is any object or normally accepted account as payment for products and services and repayment of loans, including taxes, in a certain country or economic context. It can be a liquid asset like gold, bank notes, stocks and bonds or an abstract value such as currency and stock indexes. Money is used to make transactions in most markets, including the retail market, the business market, the market sector and the government market. Money has a number of roles and functions in our lives. The definition of money will therefore vary from one country to another.

money

 

Money is usually defined as an “inflation-adjustment” tool that changes the price of a nation’s domestic products in response to changes in the level of national currency. Changes in the value of currency can either be short term or long term. In the short run, it can affect trade deficit which is, economically speaking, the difference between actual purchases and sales of goods and service and the level of production. An increase in the level of production usually leads to higher prices of goods and this causes retailers to pass on higher prices to the consumers. Conversely, a decline in currency values decreases the purchasing power of a nation’s currency and makes international trade easier.

 

Money is a highly specific and abstract concept. Whereas money is commonly accepted and generally recognized in each nation as a unit of account that can be converted or transferred to various other currencies, the nature of money generally varies across nations and time periods. For instance, in the United States dollar is typically considered a fiat money while in other countries the local currency is typically used as the unit of account. Thus, the nature of money and its relationships with various countries’ units of account are often very different and not at all similar. The purpose and function of money is most commonly seen in the exchange of commodities.

 

The role of banks in our economy is important in the functioning of our legal system. Without banks there would be no proper functioning of the financial system, the regulation of banking, and the assurance of funds transfer. Private individuals and governments are usually the ones that lend money to individual businesses, government institutions, and other entities in order to guarantee their loans as well as the repayment of such loans.

 

The role of private banks in our monetary system is most often seen in the passage of three steps. First, the lending of money is the most common and the most widely recognized role of private banks in the monetary process. This involves creating credit for borrowers by lending it to businesses or government organizations in return for temporary loans. The second step is to create money supply by creating reserves of currency that are either held in state or federal banks, or lent to other commercial banks for the same purpose.

 

The third and most important role is the purchase of various objects from other countries in exchange for their own currency. For example, if you will be visiting Mexico, you might be allowed to take some Mexican coins home as souvenirs. These coins are very similar to US dollars. However, they carry a Mexican central bank’s logo and have their own unique rate of exchange. Also, if you will buy goods from China, you can use their currency instead.

 

In this example, the money that was lent by the Federal Reserve System was created through the creation of money supply through the purchase of various commodities and coins. The banks then lend this money to businesses or other monetary institutions so that they may buy back the commodities in the form of coins in the United States at a higher price than that which they purchased them at. Also, if you will note, the commodity is money and the transaction is an exchange. Although fractional reserve banking is considered to be a controversial system among many people, it is widely used around the world today.

 

In the future, we can expect commodity money, i.e., money created from any commodity and accepted by all countries, to play a bigger role as it plays now. Indeed, the current trend does seem to indicate that the use of national currency will slowly fade away as more countries adopt a money system based on commodities. Nevertheless, for the time being, let’s just enjoy this wonderful barter system that has given humanity so much while being a major boon to our economy.

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