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interest rates impact the economy. Quantitative easing (QE) is a term frequently heard in the news. It refers to actions taken by the Fed to increase the money supply to make money more available for consumer purchases, investments, and business expansion with the goal of stimulating a sluggish economy .
Virtual Currency Eliminates the Intermediary As you can see, the evolution of money has kept pace with the changes and commercial needs of civilization. The latest in the evolution of money is virtual currency or “VC”. It is also referred to as cryptocurrency . VC is electronically created by its non-government developer , bought through digital exchanges and stored in e-wallets, not in bank accounts. VC transactions are peer-to-peer (P2P) meaning the transaction is made directly with no bank or government intermediary . VC is not issued by any government, so it is not legal tender. It is said to be stateless . Critics of virtual currencies include governments, bankers, and national security organizations. They contend that the lack of government oversight (remember it's stateless so no Fed or central bank monitors it) can result in abuse, loss, fraud, and use of the currency for criminal activity including illegal drug transactions, arms trading, and terrorist activity. Virtual currency values can be very unstable. Bitcoin is a virtual currency with a growing user base and a shady past. Bitcoin values have fluctuated wildly. Nevertheless, it is gaining mainstream popularity as a medium of exchange all around the world. It was created in 2008 allegedly by Satoshi Nakamoto. Bitcoin is highly secure, using a patented cryptography which is a secret encryption code. Bitcoins are mined by computers using special software that solves Bitcoin algorithms, enabling a steady, but limited supply in the Bitcoin system. Bitcoins can be purchased with dollars or any other currency from a Bitcoin exchange . While Bitcoin is very difficult to counterfeit, Bitcoin exchanges (where Bitcoins are deposited for exchange into another currency) have experienced numerous data breaches (hacks) resulting in huge losses for depositors. Other popular VCs are Litecoin, Dash, Peercoin, Nxt, and Dogecoin. While no government has officially recognized any of these as money, Germany has conceded that Bitcoin is a form of private money which enables it to monitor and tax some transactions . As of this writing, there are almost 300 different VCs. VC is gaining acceptance with retailers, and working its way into global commerce. Experts agree that virtual currency is here to stay, so expect to hear a lot about it in the future. A financially literate person should understand the benefits and the risks of VC. The Big Picture The inefficiencies of the barter system inspired the rise of money. Money has evolved over time. It began as commodity money, evolved to metal coinage, and to paper backed by precious metal. When the U.S. went off the gold standard in 1971, U.S. legal tender evolved into money backed by fiat . Many societies are becoming cashless, where money is in the form of electronic bytes moved around via EFT’s. Virtual currencies are gaining in popularity. They have no government oversight, and have risks and benefits. Central and reserve banks make monetary policy and control their country or economic unit’s money supply. Too much money in the system can SLIDE 4K SLIDE 4L PRODUCT PREVIEW
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THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY
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