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Questions and Answers
What accelerated the adoption of digital paymdzbsfbents during the COVID-19 pandemic?
What accelerated the adoption of digital paymdzbsfbents during the COVID-19 pandemic?
Why do many consumers find digital payments more convenient?
Why do many consumers find digital payments more convenient?
What is a factor that may slow down the transition to a cashless society?
What is a factor that may slow down the transition to a cashless society?
Why is it unlikely that cash will disappear entirely in the near future?
Why is it unlikely that cash will disappear entirely in the near future?
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What do some governments promote as a way to combat tax evasion and the informal economy?
What do some governments promote as a way to combat tax evasion and the informal economy?
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What is a concern that many individuals have about digital payments?
What is a concern that many individuals have about digital payments?
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What has made electronic payments more convenient and efficient?
What has made electronic payments more convenient and efficient?
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What can improve financial inclusion according to the text?
What can improve financial inclusion according to the text?
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Why might some people prefer using cash?
Why might some people prefer using cash?
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Why may a completely cashless society not be feasible or desirable for everyone?
Why may a completely cashless society not be feasible or desirable for everyone?
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What can businesses and governments benefit from with digital payments?
What can businesses and governments benefit from with digital payments?
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What will the pace of transition to a 'less cash' society depend on?
What will the pace of transition to a 'less cash' society depend on?
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Privacy concerns are not a factor slowing down the transition to a cashless society.
Privacy concerns are not a factor slowing down the transition to a cashless society.
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Cash is not necessary in emergencies, natural disasters, or situations where digital infrastructure may be compromised.
Cash is not necessary in emergencies, natural disasters, or situations where digital infrastructure may be compromised.
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It is likely that a completely cashless society will emerge in the near future.
It is likely that a completely cashless society will emerge in the near future.
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Study Notes
Meaning of Money
- Money is defined as anything that is generally accepted as a medium of exchange or in the repayment of debts.
- Money performs four specific functions:
- Medium of Exchange: enables the purchase of goods and services.
- Store of Value: allows people to hold value for future spending.
- Unit of Account: measures the value of goods and services.
- Standard of Deferred Payment: enables future contractual payments.
Characteristics of Money
- Durable: withstands repeated use.
- Easily divisible: can be divided into smaller units.
- Comparatively scarce: requires effort to procure.
- Homogeneous: each unit is identical.
- Convenient: easy to carry and use.
Measuring Money Supply
- Money supply is the total amount of money in an economy.
- Three measures of money supply:
- M1 (Narrow Money): coins, paper money, and demand deposits.
- M2 (Near Money): M1 plus near money (savings accounts, fixed deposits, etc.).
- M3 (Broad Money): M2 plus other liquid assets.
Evolution of the Payment System
- Barter System: direct exchange of goods and services without money.
- Limitations of Barter System:
- Double Coincidence of Wants: finding a suitable trading partner.
- Lack of a Standard Unit of Account: no common measure of value.
- Difficulty in Making Change: indivisible goods.
- Limited Scope: only suitable for small-scale economies.
- Inefficiency: time-consuming and vulnerable to imbalances.
Organized Barter (Trading-Post Economies)
- A structured system to facilitate barter transactions.
- Features:
- Barter Exchange or Platform: a central platform for trading.
- Membership: participants must become members.
- Listing of Goods and Services: a directory of available items.
- Barter Credits: a system of credits earned and used for trading.
- Trade Directory: a catalog of available goods and services.
- Barter Coordinator or Broker: facilitates trades and manages credits.
- Clearinghouse Function: ensures fairness and balance.
- Rules and Regulations: governing the exchange.
- Record Keeping: detailed records of transactions.
Evolution of Money
- Commodity Money: has intrinsic value (e.g., gold, silver).
- Characteristics:
- Intrinsic Value: value comes from the commodity itself.
- Durability: resistant to wear and tear.
- Fungibility: each unit is interchangeable.
- Limited Supply: supply is limited by the availability of the commodity.
- Portability: can be divided and transported.
- Store of Value: retains value over time.
- Fiat Money: has value due to government decree (e.g., coins, paper money).
- Characteristics:
- No Intrinsic Value: value comes from government decree.
- Can be easily transported.
- Can be used for larger transactions.
- Bank Money: deposits held in banks and financial institutions.
- Characteristics:
- Creation of Bank Money: through fractional reserve banking.
- Types: demand deposits, savings deposits.
- Can be used for transactions.
- Electronic Money: digital representation of value (e.g., e-wallets, prepaid cards).
- Characteristics:
- Can be used for various transactions.
- Security features: PIN codes, fingerprint/ facial recognition, 2FA.
- Issued by financial institutions.
- Can be used online and in-person.### Stored-Value Cards
- Widely accepted and can be used at various locations, including retail stores, restaurants, and ATMs
- Offer convenience and can be a useful budgeting tool for consumers
- Often used for gifting, travel, budget management, and other purposes
- Fees associated with stored-value cards can reduce their value over time, including initial purchase fees, reload fees, and inactivity fees
Electronic Cash
- Refers to electronic payment systems, digital wallets, and other cashless payment methods
- Popular in Malaysia, with digital wallet providers including Touch 'n Go eWallet, GrabPay, Boost, and BigPay
- Banking apps allow customers to perform electronic cash transactions, make payments, transfer money, and manage their accounts
- Contactless payments using debit or credit cards with NFC technology are gaining popularity
- QR code payments are widely used, allowing consumers to scan QR codes to make payments
- E-payments are used for public services, such as road tolls, parking, and local government payments
- Peer-to-peer transfers are facilitated through mobile wallets and banking apps
- Some electronic cash solutions can be used for cross-border transactions
Security and Regulation
- Security is a top priority for electronic cash systems in Malaysia
- Encryption, authentication, and two-factor authentication (2FA) are employed to protect users' financial information and transactions
- The Central Bank of Malaysia (Bank Negara Malaysia) regulates electronic cash systems, setting guidelines and standards to ensure their security and stability
- Rewards, cashback, and promotions are offered by e-cash providers to incentivize users
Evolution of Money
- Money supplies are measured by M1 (narrow money), M2 (near money), and M3 (broad money)
- M1 consists of currency, coins, and demand deposits
- M2 includes M1, fixed deposits, savings accounts, and negotiable certificates of deposit
- M3 includes M2, other banking institutions, and short-term money market investments
- The financial system continually introduces new financial instruments, requiring redefinition of money supply
- Different monetary aggregates are used as guides for monetary policy actions and setting monetary objectives
Functions of Money
- Medium of exchange: enables the exchange of goods and services
- Store of value: allows individuals to save wealth over time
- Unit of account: provides a standard unit of measurement for goods and services
- Standard of deferred payment: enables the delayed settlement of debts
Characteristics of Money
- Durability: resistant to wear and tear
- Portability: easy to transport and divide into smaller units
- Divisibility: can be divided into smaller units
- Uniformity: each unit is identical to another of the same type
- Limited supply: the supply of money is limited by the availability of the underlying commodity
- Acceptability: widely accepted as a medium of exchange
Barter System
-
Direct exchange of goods and services without using money
-
Requires a double coincidence of wants, where both parties have what the other wants
-
Lacks a standard unit of account and store of value
-
Inefficient and time-consuming
-
Vulnerable to imbalances in supply and demand### Bank Money
-
A critical component of the modern financial system, facilitating economic transactions and providing a liquid medium of exchange.
Evolution of Money
Electronic Money (E-Money)
- Exists in electronic form
- Can be used for various electronic transactions
- Regulated by the Central Bank of Malaysia (Bank Negara Malaysia)
- Types: prepaid cards, mobile wallets, electronic vouchers
- Issuers: financial institutions, such as banks and non-bank institutions (e.g. Touch 'n Go, GrabPay, Boost, BigPay)
- Security measures: PIN codes, fingerprint or facial recognition, two-factor authentication (2FA)
Debit Cards
- Enable users to purchase goods by electronically transferring funds directly from their bank accounts to a merchant’s banks
- Value depends on the bank account balance
- Examples in Malaysia: MyDebit CIMB, Maybank, RHB
- Can be used for: ATM cash withdrawals, point of sale (POS) purchases, online payments, bill payments, contactless payments using NFC technology
Stored-Value Cards
- Also known as prepaid cards or gift cards
- Preloaded with a specific amount of money
- Can be used to make purchases, pay for services, or withdraw cash up to the value stored on the card
- Key features and uses:
- Prepaid value: not linked to a bank account or credit line
- Types: gift cards, prepaid debit cards, transportation cards, phone cards, payroll cards
- Reloadable vs. non-reloadable
- Security features: enhanced security, report lost or stolen cards
- Online and in-person transactions
- Record-keeping: track spending
- Expiration dates: may result in loss of unused balance
Electronic Cash (E-Cash)
- Involves electronic payment systems, digital wallets, and cashless payment methods
- Popular in Malaysia: digital wallets (e.g. Touch 'n Go eWallet, GrabPay, Boost, BigPay), mobile banking apps, online banking
- Contactless payments using debit or credit cards with embedded NFC technology
- QR code payments
- e-Payments for public services (e.g. road tolls, parking, local government payments)
- Peer-to-peer transfers
- Cross-border transactions
- Security measures: encryption, authentication, two-factor authentication (2FA)
- Regulation: Central Bank of Malaysia (Bank Negara Malaysia)
Electronics Checks
- Allow users to pay bills directly over the Internet without sending a paper check
- Process: user writes electronic check, sends to recipient, recipient verifies and sends to bank, bank transfers money
Moving Towards a Cashless Society
- Global trend, but pace varies by country
- Important to note the transition is accelerating in recent years
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Description
Test your knowledge on the evolution of money from commodity money to fiat money, and the transition from physical commodity backing to government decree acceptance. Explore the historical use of gold and silver as money and the reasons behind the transition.
