THE PAYMENTS SYSTEM HAS EVOLVED FROM COMMODITY MONEY TO FIAT MONEY...

3)

The payments system has evolved from commodity money to fiat money to checks to electronic

money. Discuss one advantage and one disadvantage of each form of money.

Answer: Commodity money—Advantages: standardized; widely acceptable; divisible; does not

deteriorate. Disadvantage: difficult to carry and transport.

Fiat money—Advantage: easy to carry. Disadvantage: requires trust in authorities to be

acceptable, easily stolen, and can be difficult to transport large amounts.

Checks—Advantages: reduce transport costs, easy to transfer large amounts, safe.

Disadvantages: Takes time to clear checks, costly to clear checks.

Electronic money—Advantages: very low cost, ease of use. Disadvantages: Initial cost of

computer systems, safety concerns; concerns about privacy due to electronic trail.