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02 Modern Money


In this section takes a look at modern money the banking system as it is, well almost. Let's say as it was meant to be. In practice there are lots of little complexities that I won't go into. So this is a kind of overview as far as I have understood it. Comments and corrections welcome.

Questions Answered

This section should answer questions like;

Why do we value paper money in the first place?

Because we can pay our taxes in it read 1 Classes of Money.

What is the relationship between paper money, the central bank, interest rates and inflation?

Follow this link for a new digital money idea BitCoin

(C)2010 Tom de Havas. The information under this section is my own work it may be reproduced without modification but must include this notice.


1 Classes of Money - Briefly explains the different kinds of money, commodity money, representative money, credit money and fiat money.

2 Modern Banking - Modern Banking is based on fiat money issued by a central bank with other banks providing services to the non-banking world. This is how they work.

3 The Banks - This is a more detailed look at the role played by the banks today.

4 Financial Instruments - There are many contracts that are traded in exchanges across the world. These are known collectively as financial instruments. Its not really a good name, but there we are!

5 The World Reserve Currency - In 1999 the worlds currency reserves consisted of  71% USD and 18% Euros, by 2009 this was  62% USD and 27% Euros. Can the USD maintain its position?