Currency Flashcards
(10 cards)
What problem does currency solve compared with barter?
Eliminates the need for a double coincidence of wants; enables easy, divisible transactions.
What are the three core functions of money (MSU)?
Medium of exchange, Store of value, Unit of account.
Define a commodity currency and give one example.
Money with intrinsic value (e.g., cacao beans, cattle, salt).
What is fiat money?
Government‑declared legal tender that is not backed by a physical commodity; value rests on public confidence.
Why did fiat currencies replace the gold standard?
Greater flexibility for monetary policy; limited gold supply constrained economies and risked reserve runs.
How do central banks mainly control inflation?
By adjusting interest rates—monetary policy.
Contrast fixed (pegged) and floating exchange rates.
Fixed: central bank intervenes to keep a set value; Floating: price determined by market supply and demand.
What triggered Zimbabwe’s 2008 hyperinflation and what was a striking consequence?
Mass money printing after economic collapse; 100‑trillion‑dollar notes were worth only a few US cents.
Name two features that make cryptocurrencies attractive compared to fiat money.
Decentralised control and algorithmic scarcity (borderless digital payments).
What is debasement in the context of coinage?
Reducing precious‑metal content to mint more coins, thereby devaluing them.
