An IOU will be accepted in exchange for goods and services only if it is seen as a store of value. However it does not have to store value indefinitely to qualify as money. It is money if it retains value long enough to be generally accepted as a medium of exchange. Money is always a store of value, but a store of value is not always money. For example, a bond is a store of value, but bonds are seldom accepted as a medium of exchange, and therefore are not money.
Most of the money we use is denominated in the unit of account established by the government. That enables us to measure the value of a good or service against another, based on what each sells for in the market. How many quarts of milk are equivalent in value to a barber shop haircut can only be determined in the market place.
IOUs as Money
Money is the credit side of a balance sheet relation. Every dollar of credit is matched by an equal amount of debt. A bank loan creates a credit for the borrower in the form of a negotiable IOU (the deposit) and a matching debt (the obligation to repay the loan). For the bank, it creates an often illiquid asset (the loan contract) and an equal liability (the negotiable IOU).
The term money is sometimes used in reference to high quality debt instruments nearing maturity. However such near-money is seldom acceptable as a medium of exchange. Besides being inconvenient to the seller, the monetary value of near-money is not really known until sold in the marketplace.
Fed Funds and Bank Money
When the Fed purchases a financial asset from the public, it credits the seller's bank with a deposit at the Fed, known as Fed funds. Banks can exchange Fed funds for Federal Reserve notes, and vice versa, on demand. In either form, these Fed IOUs are the most negotiable in the economy. This is because the private sector must surrender Fed funds in paying Federal taxes. Conversely the government pays in Fed funds when it spends.
Individuals usually pay taxes with bank money, i.e. a check against a bank deposit. However the bank must cover the check with its own Fed funds. It cannot issue an IOU to cover the check. The Fed accepts bank money at par with its own IOUs. Thus bank deposits are nearly as negotiable in the private sector as Fed funds. Private party IOUs may be legally binding, but they are of uncertain monetary value and seldom negotiable. They are simply private debt rather than money.
(2401 symbols)
Vocabulary list: _________________________________________
IOU – I owe you - Я вам должен (форма долговой расписки)
store of value - сбережения
indefinitely – (зд.) произвольно, по своему усмотрению
negotiate – договариваться, обсуждать
retain – удерживать, сохранять
bond – облигация, долговое обязательство
unit of account – расчетная единица
balance sheet – балансовый отчет
near-money - субститут денег, квази-деньги
negotiable – оборотный, договорной
maturity - наступивший срок платежа
matching debt – сбалансированный долг
illiquid asset – неликвидные активы
monetary value - денежная стоимость
equal liability – равная ответственность
vice versa – наоборот
Vocabulary Section
Exercise I. Find in the Text the English for:
натуральный обмен; справедливый обмен; принимать к оплате; сбережения; надолго сохранять ценность; долговое обязательство; выражать в определенной денежной единице; расчетная единица; измерить ценность одного товара относительно другого; баланс финансовых средств; неликвидные активы; денежная стоимость; финансовые активы; самый оборотный; юридически обязательный; неопределенная денежная стоимость.
Exercise II. Answer the following questions:
1. Is money used only for fair exchange of goods and services?
2. What is an IOU?
3. When does an IOU become money?
4. What is the definition of money as a credit?
5. Under what conditions can an IOU be accepted in exchange for goods and services?
6. Is any store of value defined as money?
7. What factor defines money value?
8. When is money referred to as near-money?
9. Why is near-money seldom accepted as a medium of exchange?
10. How are Fed funds created?
11. What are the most negotiable bonds in the economy?
12. How do individuals pay taxes?
Exercise III. Render in English:
Безналичные деньги
Безналичные деньги эмитируются банками на основе кредитования реальной экономики, благодаря чему их выпуск тесно связывает с потребностями оборота, обеспечивается их изъятие из оборота при погашении ссуд и поддержка стабильной стоимости.
Безналичные деньги возникли стихийно из рыночных отношений, но на значительно высшей степени развития, на котором кредит стал их имманентной составляющей. Сначала торговый оборот породил так называемые торговые деньги в форме долговой расписки, или коммерческого векселя. Использованный как платежное средство, он стал оборачиваться.
С развитием банковского кредита и банковского дела вообще банки стали выпускать вместо коммерческих векселей свои обязательства - банкноты, которые постепенно превратились в универсальное платежное и покупательное средство и стали самостоятельным видом кредитных денег - безналичными деньгами. Со временем, когда банки стали широко привлекать банкноты от клиентов на вклады, возникла вторая форма банковских денег — депозитные деньги.
Speech Practice
Points for discussion:
Ø Speak about basic types of money and their functions.
Ø Speak about basic properties of money as a credit.
Ø What do Fed Funds and Bank Moneyhave in common?
Ø What do they differ in?