currencies notes


the primary purpose of paper currencies is to make business transactions easier

this involves the concept of trading, person 1 gives and item to person 2 in exchange for person 2 giving some other item in the opposite direction

when there is one supplier prices can rise to high levels, which is a problem that is not easily resolved

with many suppliers, prices can fall to almost zero, a bad situation for the supplier

coins and paper notes can be considered to be items of value such as a small amount of a real item

issuing/creating a currency is not an easy task 


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inflation

issuing large volumes of money may generate inflation, unless the currency is backed by a commodity for fixed prices and the volume of money on issue is sustainable.

inflation is defined as prices rising significantly. it reduces the value of existing holdings of currency may adversely effect business activity to a significant extent.

a small amount of inflation, 2% to 3%, may be a good thing. over long timeframes this can create bubbles leading to crashes and also various practical problems

it isn't possible to create free value by printing extra currency, this process divides the available economic value across a larger number of notes, 

rather than creating new economic value. printing large volumes of money leads to inflation which cancels the effectiveness of the notes as a currency

as a guideline, create enough money to cover 1 week's costs per person of the population/area being covered, e.g. 2,000 x 20,000,000.



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banking

currency system is not practical without banks. a bank is a secure building where customers can store sums of money. fees are charged as the 

bank is operated as a business activity.

in computerised systems, a record is kept of the customer's holdings of cash kept at the bank. the total amount of notes are not held, 

only enough to cover normal withdrawal and deposit activity at that branch



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issuing program

select a commodity that the issuer produces, e.g. wheat, oil, bread, paper

select a base unit, e.g. $1 = 0.5kg paper

a range of denominations 1, 5, 10, 20, 50, 100, 500 etc.

solicit graphics designs for the notes

physical printing of the notes

give notes away in modest quantities

honour the value exchange promise, e.g. supply 50kg paper in exchange for $500 if requested, although it is not intended that this take place 

in large quantities (except a 'currency receipt' rather than 'currency note' concept)


alternatively: have no commodity backing, but set one or more fixed prices for widely used commodites



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legally


commodity-backed	the note represents a legal document on which is printed a promise from the issuer, to exchange the note for a specified amount of a commodity,

				e.g. 'redeemable for 1 ounce of gold'



paper currency		a valuable item, the note itself protected by copyright law, i.e. copying/counterfeiting would be an infringement of copyright



points			need to be officially issued and recorded by the issuer, e.g. credit points on a website used to pay for sending emails, purchasing items etc.








