What is a Better Monetary System: Bargaining or Money? (Essay Sample)

What is a better monetary system: Bargaining or Money?
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What is a better monetary system: Bargaining or Money?
A monetary system refers to the set of mechanisms in which a government provides money to be circulated in the economy. In the majority of governments around the world, monetary systems take the form of mints, the central bank, and commercial banks (Mar, 2000). The two major forms of monetary systems used by governments around the world include commodity money based and fiat money system. The former refers to a system whereby the basic money unit is based on metallic values mainly gold and silver. Fiat money, on the other, hand encompasses a system whereby the government and central bank regulate the demand and supply of money. In other words, fiat money involves a bargaining system whereby the purchasing power determines the country’s monetary value (Flowers & Zeese, 2013). Bargaining is better than money based monetary system because it is not subject to scarcity, more cost friendly, and has a high acceptability factor.
The government and central bank control the supply of fiat money, unlike gold. This means that it is highly unlikely there will be a scarcity of the monetary unit. Human resources manufacture commodity money like gold, and thus supply is subject to the respective efficiency of the production unit. A good thing about fiat money is the fact that the government and the central bank can control the respective supply in the economy. It is noteworthy that the ability to control the supply of fiat money depends on the purchasing power of the country’s financial institutions (Jeffersonian, 2010).
Another advantage of a bargaining monetary system is that the associated costs are rather proportional. Fiat money does not have massive production cost compared to gold money. In addition, it does not require refinement as compared to gold money. The central bank is only required to employ a small number of employees required to take care of the logistical functions of the bank (Jeffersonian, 2010). This makes it a popular option not only for the government but also to the citizens since they will not be required to pay high taxes to cater for the production expenditure. Consequently, this makes it more acceptable to the society.
Finally, fiat money has higher acceptability factor when compared to commodity-based money. In essence, fiat money does not have an intrinsic value but rather people tend to agree with a specific value of a certain currency depending on the prevailing tender value. This means that there is no difference between a $1 bill and $ 100 bill only that people have accepted the fact a $100 has more value (Jeffersonian, 2010). This is quite unlike the case of gold money whereby the respective value is dependent on such factors as weight and quality. This enables the government to distribute wealth in the economy with much ease.
In conclusion, a monetary system is vital since it defines how a government supplies the money to the economy. The fiat money system, which is known otherwise as a bargaining system is more popular w...