Mishkin Econ13e PPT 03

The Economics of Money, Banking, and
Financial Markets
Thirteenth Edition
Chapter 3
What Is Money?
Copyright © 2022, 2019, 2016 Pearson Education, Inc. All Rights Reserved
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• In this chapter, we develop precise definitions by
exploring the functions of money, looking at why and
how it promotes economic efficiency, tracing how its
forms have evolved over time, and examining how
money is currently measured.
Learning Objectives
3.1 Describe what money is
3.2 List and summarize the functions of money
3.3 Identify different types of payment systems
3.4 Compare and contrast the M1 and M2 money supplies
Meaning of Money (1 of 2)
• Money (or the “money supply”): anything that is generally
accepted as payment for goods or services or in the
repayment of debts.
• A broad definition
• Currency cũng là tiền
Meaning of Money (2 of 2)
• Money (a stock concept) is different from:
– Wealth: the total collection of pieces of property that
serve to store value
– Income: flow of earnings per unit of time (a flow
concept)
• Wealth k chỉ là có nhiều tiền, như là kho để lưu trữ giá trị
• Income k so sánh được nhiều hay ít khi k biết khoảng
thgian để tạo ra
• Khái niệm tiền khác khái niệm wealth và income
Functions of Money (1 of 2)
• Medium of Exchange:
– Eliminates the trouble of finding a double coincidence of needs (nhu
cầu trùng khớp) (reduces transaction costs)
– Promotes specialization
• A medium of exchange must:

– be easily standardized( dễ dàng chuẩn hóa để thuận tiện xđ giá trị)
– be widely accepted
– be divisible (chia nhỏ để có thể thối lại)
– be easy to carry
– not deteriorate quickly (lâu hư)
• Chức năng của tiền cần phải có 3 cái: trung gian trao đổi thanh toán, đơn vị
đo lường, lưu giữ giá trị intermediation of payments, measurement units,
value retention
• Medium of exchange: k cần tốn thgian kiếm ng có nhu cầu trùng để trdoi
Functions of Money (2 of 2)
• Unit of Account:
– Used to measure value in the economy
– Reduces transaction costs
• Store of Value:
– Used to save purchasing power over time.
– Other assets also serve this function.
– Money is the most liquid of all assets but loses value
during inflation.
Cost pride: yết giá, Hold money to store the value, Most liquid asset: thanh khoản cao
nhất, Cầm tiền k cần mất phí giao dịch
Evolution of the Payments System (1 of 2)
• Commodity Money: valuable, easily standardized, and
divisible commodities (e.g. precious metals, cigarettes)
dùng hh trdoi hh (vd như vàng bạc, kim loại…), hh phải
có gtri. Nhược điểm: hh nặng, khó vận chuyển khi mua
hh có gtri lớn -> cải tiến thành fiat money
• Fiat Money: paper money decreed by governments as
legal tender ( tiền pháp định: k đổi qua kloai được, chỉ
định bởi cphu), ưu điểm: nhẹ hơn, dễ đem đi, nhược
điểm: dễ bị trộm mất, mua hh gtri cao vẫn mất công vận
chuyển -> phát minh checks
Evolution of the Payments System (2 of 2)
• Checks: an instruction to your bank to transfer money
from your account nhược điểm: khi nộp check vào
nghang thương mại, mất thgian thực hiện thanh toán bù
trừ phải mất vài ngày giao dịch mới use money -> ra đời
e payment
• Electronic Payment (e.g. online bill pay)
• E-Money (electronic money):
– Debit card phải bỏ tiền mới thanh toán được
– Stored-value card (smart card) = e wallet
– E-cash như mua hàng onl = hệ thống PayPal
Nhược điểm: Back and forward cancel
Are We Headed for a Cashless Society?
• Predictions of a cashless society have been around for
decades, but they have not come to fruition.
• Although e-money might be more convenient and efficient
than a payments system based on paper, several factors
work against the disappearance of the paper system.
• However, the use of e-money will likely still increase in
the future.
Will Bitcoin Become the Money of the
Future?
• Bitcoin is a type of electronic money created in 2009.
• By “mining,” Bitcoin is created by decentralized users
when they use their computing power to verify and
process transactions.
• Although Bitcoin functions as a medium of exchange, it is
unlikely to become the money of the future because it
performs less well as a unit of account and a store of
value.
Measuring Money (1 of 2)
• How do we measure money? Which particular assets can
be called “money”?
• Construct monetary aggregates using the concept of
liquidity:
– M1 (most liquid assets) = currency + traveler’s checks
+ demand deposits + other checkable deposits
• Có 2 edicator đo tính thanh khoản của tài sản
• M1: có tính thanh khoản nhất= tiền tệ đang được nắm
giữa/ lưu hành + tk thanh toán (thường là business,
business firm nắm để cty biết checks trên tk thanh toán, tk
k trả tiền lãi) + checkable deposit do household nắm, trả
tiền lời -> dung để thanh toán nên interest rate nhỏ
Measuring Money (2 of 2)
• M2 (adds to M1 other assets that are not so liquid) = M1 + small
denomination time deposits + savings deposits and money market
deposit accounts + money market mutual fund shares
• M2: có tính thanh khoản kém hơn= M1 + tk tiết kiệm có thgian ngắn,
có số tiền nhỏ, quy mô < 100,000USD + tk mà ngân hàng thương mại
thanh toán lãi, k cho phép ng dùng biết checks trên tk, ng dung nhận
được tiền gốc và tiền lãi + giống như mua cổ phiếu thị trường tiền tệ
• Money market: short-term debt
• Deposit account do ngân hàng thương mại phát hành
• Fund shares do cty phát hành cổ phiếu
The Federal Reserve’s Monetary
Aggregates (1 of 3)
Table 1 Measures of the Monetary Aggregates
Value as of August 31,
2020 ($ billions)
Blank
M1 = Currency 1,920.4
+ Demand deposits 2,317.0
+ Other checkable deposits 1,176.4
Total M1 5,413.8
M2 = M1 Blank
+ Small-denomination time deposits 351.9

+ Savings deposits and money market deposit accounts 11,593.4
+ Money market mutual fund shares (retail) 1,105.2
Total M2 18,464.3
Source: Federal Reserve Statistical Release, H.6, Money Stock Measures:
https://www.federalreserve.gov/releases/H6/current .
Aggregates (2 of 3)
Quy mô M2 > M1, chiếm chủ đạo nền kte -> dựa M2 nhiều hơn, phổ
biến hơn trong nền kte
Aggregates (3 of 3)
• M1 versus M2: Does it matter which measure of money is
considered?
• M1 and M2 can move in different directions in the short run
(see figure).
• Conclusion: the choice of monetary aggregate is important
for policymakers.
Where Are All the U.S. Dollars?
• The more than $4,500 of U.S. currency held per person
in the United States is a surprisingly large number.
• Where are all these dollars and who is holding them?
– Criminals
– Foreigners
• M1 ít vì nắm M1 k có lãi, lãi thấp. M2 lãi cao hơn.
• Criminals: hold currency -> hard to trace
• Foreigners: hold currency (đồng tiền mạnh) -> phòng
ngừa rủi ro lạm phát, giữ gtri
Figure 1 Growth Rates of the M1 and M2
Aggregates, 1960–2020
Source: Federal Reserve Bank of St. Louis, F RED database: https://fred.stlouisfed.org/series/M1SL
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The Economics of Money, Banking, and

• A medium of exchange must:

+ Small-denomination time deposits 351.9

Source: Federal Reserve Statistical Release, H.6, Money Stock Measures:

Source: Federal Reserve Bank of St. Louis, F RED database: https://fred.stlouisfed.org/series/M1SL

This work is protected by United States copyright laws and is

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