Question

You are a citizen of a newly developing economy and been appointed to develop a new currency and banking system that works effectively at home and will be accepted by foreign countries your economy intends to trade with. Based on the six properties in A), describe this currency (you may be creative) and the banking system.

Answer 1

Properties of money

1.      General acceptability: It is important for money to be recognized by all the individuals as the main medium for trading and exchange.

2.      Portability: The money should be easy to carry from one place to other; this is it should be light weighted and relatively average in size.

3.      Durability: The durability of money should be good that is it should long last so that it can be used for a longer period of time and thus helping to recover the cost incurred in producing a physical form of money.

4.      Homogeneity: The entire economy should be having the same kind of money.

5.      Divisibility. It should be easily broken down into simple small amounts.

6.      Stability of value:- The currency must be stable and it should have high values to neglect and avoid any kind of bulkiness while trading.

The economy should adopt such a banking system where there is only one central bank controlling the monetary decisions and operations of other financial institutions. All the rights should be given to this bank in order to implement all the of monetary control measures to ensure the stability of the currency and also the supply of money in the economy. The banks should also be having the right and power of controlling the production of fake money in the economy and should be able to protect and preserve the six properties of money.