Intersting, I didn't know that. Thanks for pointing it out.
I did find the information about the requirement for banks to cash government cheques; also, the fact that banks must open a retail account for someone (except under exceptional circumstances--- suspicion of illegal activity, etc). However, I couldn't find any reference to the fact that a bank is required to accept physical currency (bank notes, etc) specifically for deposit into a retail bank account.
Even if such a law is there somewhere, the fact that banks must accect bank notes for deposit still would not mean that bank notes have intrinsic value. It would simply mean that they were legally obligated to put bank notes into some sort of "storage" for you.
A financial institution in particular is not obligated to take any specific form of deposit from you, or any specific form of payment for any good or service, just as is the case for any other business.
ScottyZ
As I suspected, you were wrong about this. Beckers may not have to sell you a chocolate bar if they don't want to, but a bank DOES have to let you open an account if you request one, and DOES have to accept deposits from you. It's all covered in a piece of legislation called the "Bank Act" (http://laws.justice.gc.ca/en/B-1.01/fulltoc.html). Not only do they have to accept cash from you, they also have to accept government-issued cheques. Furthermore (I actually had heard this before, although I wasn't 100% sure if it was true) any bank has to cash a government cheque for you, whether you are a customer of that particular bank or not. And, they are not allowed to charge you for this service.
As I was saying before, a bank is NOT the same as Beckers. They have a lot of strict regulations which they must follow.
I did find the information about the requirement for banks to cash government cheques; also, the fact that banks must open a retail account for someone (except under exceptional circumstances--- suspicion of illegal activity, etc). However, I couldn't find any reference to the fact that a bank is required to accept physical currency (bank notes, etc) specifically for deposit into a retail bank account.
Hmm... ok, there was a slight assumption there on my part. I assumed that since they had to open a deposit account for you, they also had to accept deposits from you (otherwise, really, what's the point). After a quick scan through it again I actually couldn't find anything saying that they had to accept deposits (which is not to say that it is not in there... just that I couldn't find it). Now, I'm no lawyer, but I would guess that that's a reasonable legal interpretation. It would be bizzarre, to say the least, if the bank was required by law to let you open a deposit account, but were NOT required to let you use that deposit account to make deposits.
Even if such a law is there somewhere, the fact that banks must accect bank notes for deposit still would not mean that bank notes have intrinsic value. It would simply mean that they were legally obligated to put bank notes into some sort of "storage" for you.
Hmm... no. It's a little different. That is what makes the bank notes legal tender. A $100 bill is a piece of paper with certain characteristics. But, when you deposit this $100 bill, they do not credit your account with "One piece of paper that has certain characteristics". They credit your account with "One hundred canadian dollars". There is a difference between depositing $100 into your account, and putting a $100 bill into a safety deposit box.
I guess this is what I have been saying all along. The fact that the bank note is legal tender DOES give it intrinsic value. It gives the bank note an instrinsic value of one hundred canadian dollars. Whether or not one hundred canadian dollars is worth anything is another, unrelated matter, and is subject to change.
Hmm... no. It's a little different. That is what makes the bank notes legal tender. A $100 bill is a piece of paper with certain characteristics. But, when you deposit this $100 bill, they do not credit your account with "One piece of paper that has certain characteristics". They credit your account with "One hundred canadian dollars".
Well, they convert it into another form for record keeping purposes, and efficient storage. This endows on the original thing you gave the bank no more or less intrinsic value.
There is a difference between depositing $100 into your account, and putting a $100 bill into a safety deposit box.
I don't see much difference, except possibly ease of access or storage fees.
Whether or not one hundred canadian dollars is worth anything is another, unrelated matter, and is subject to change.
I don't think this is unrelated. In fact, anywhere I've said that bank notes have no intrinsic value, you could replace that notion with the fact that Canadian dollars have no intrinsic value.
You might be getting at the idea when you say the worth of Canadian dollars is "subject to change". If you are referring to the fact that $100 Canadian dollars might be worth 100 loaves of bread today, but possibly a different amount of loaves one year from now, you are now talking about money having extrinsic value, not intrinsic value.
Hmm... no. It's a little different. That is what makes the bank notes legal tender. A $100 bill is a piece of paper with certain characteristics. But, when you deposit this $100 bill, they do not credit your account with "One piece of paper that has certain characteristics". They credit your account with "One hundred canadian dollars".
Well, they convert it into another form for record keeping purposes, and efficient storage. This endows on the original thing you gave the bank no more or less intrinsic value.
But it does! It means that that piece of paper has an instrinsic value of $100.
There is a difference between depositing $100 into your account, and putting a $100 bill into a safety deposit box.
I don't see much difference, except possibly ease of access or storage fees.
There is a huge difference. When you put the bank note into a safety deposit box, the bank is storing that physical piece of paper for you. When you go back next month, you have the right to get that exact same piece of paper back from them.
On the other hand, when you deposit a $100 note into your bank account, they take that piece of paper from you, and in return, they credit your account with the intrinsic value of that piece of paper... one hundred canadian dollars. That piece of paper is no longer yours... you can't come back next month and ask for the same piece of paper.
Basically, it demonstrates the difference between the physical piece of paper, and the instrinsic value which is assigned to that piece of paper.
Whether or not one hundred canadian dollars is worth anything is another, unrelated matter, and is subject to change.
I don't think this is unrelated. In fact, anywhere I've said that bank notes have no intrinsic value, you could replace that notion with the fact that Canadian dollars have no intrinsic value.
Well, there is a difference between the two statements. There is a difference between canadian dollars, and the bank notes/coins which represent canadian dollars. The first is an abstract concept, while the second is a physical object. The fact that the notes are legal tender is what connects the two concepts.
On the other hand, when you deposit a $100 note into your bank account, they take that piece of paper from you, and in return, they credit your account with the intrinsic value of that piece of paper... one hundred canadian dollars. That piece of paper is no longer yours... you can't come back next month and ask for the same piece of paper.
Basically, it demonstrates the difference between the physical piece of paper, and the instrinsic value which is assigned to that piece of paper.
Perhaps this is simply turned into semantics and terminology.
As you were referring to, most people are perfectly happy to give the bank a $100 bill for deposit into their bank account, in full recognition of the fact that it is unlikely that they will get that exact same bill back later. This actually clearly demonstrates that a bank note has *no* intrinsic value. If it did have some kind of intrinsic value, people would never give it up so easily. That is, in the case of intrinsic value, people would strongly prefer the safety deposit box storage rather than the deposit on account method.
I found the following explanation of intrinsic vs. extrinsic value which captures the comparison between these well:
Intrinsic value is value which is inherent in an object: A gold coin has intrinsic value because of the gold it contains. Even if its issuing authority (such as a government) were to fail to honor the coin's value, it would retain the its properties that make it valuable, such as being shiny, malleble, and pretty.
Extrinsic value is value which arises because of an agreement: Although the intrinsic value of a €100 note is not much more than the value of any similar piece of paper with a pretty picture on it, it has a practical value (an extrinsic value) of €100. If its issuing authority were to fail to honor the note's value, it would soon become nearly worthless. This happened recently with the Argentinian peso.
Intrinsic value is value which is inherent in an object: A gold coin has intrinsic value because of the gold it contains. Even if its issuing authority (such as a government) were to fail to honor the coin's value, it would retain the its properties that make it valuable, such as being shiny, malleble, and pretty.
Ok, I was using the term "intrinsic" incorrectly. Technically, the value that a $100 note has is extrinsic, since it comes from an external source, namely, the government. But, I still think that my point here is valid, namely, that it is worth distinguishing between the currency and the physical notes/coins which represent that currency. The fact that the notes/coins are "legal tender" is what connects the two concepts. Tomorrow, my crispy new $100 bill may not be able to buy a loaf of bread, but it will still be worth $100.
Tomorrow, my crispy new $100 bill may not be able to buy a loaf of bread, but it will still be worth $100.
I guess so, but what if it does turn out like that? Let's say that tomorrow, no-one will give you a loaf of bread (or anything) in exchange for Canadian money. [For example, in the worst case of a currency crisis and/or hyperinflation.] Does it really have any meaning to say that your bank note is "worth $100" in that case?
I guess this has been one of my main points. A bank note doesn't have value on its own (i.e. intrinsic value). A bank note does have extrinsic value, which may or may not be the same in the future. (Inflation a simple example of this phenomenon.)
To be completely exact, I should instead say that most people *believe* that Canadian bank notes have extrinsic value, and if you really think about it, this is precisely where that extrinsic value comes from.
Currency may very well be the world's largest religion. And it's a good thing we're all believers. 8)
Technically, the value that a $100 note has is extrinsic, since it comes from an external source, namely, the government.
I don't think the extrinsic value of a bank note comes from the government.
The extrinsic value of something represnts its potential usefulness. The extrinsic value of a bank note comes from the expectation that it may be exchanged for goods or services in the future. That's got nothing to do with the government.
To be very explicit, the government provides no guarantee that your $100 bill will be exchangeable for any particular good or service in the future.
I don't think the extrinsic value of a bank note comes from the government.
The extrinsic value of something represnts its potential usefulness. The extrinsic value of a bank note comes from the expectation that it may be exchanged for goods or services in the future. That's got nothing to do with the government.
To be very explicit, the government provides no guarantee that your $100 bill will be exchangeable for any particular good or service in the future.
The government guarantees that my $100 bill will be worth one hundred canadian dollars. They will not turn around tomorrow and say, whoops, we printed too many $100 bills, they're only worth ninety canadian dollars each now because of supply and demand. This is what makes a $100 bill fundamentally different from, say, a hockey card which is worth one hundred canadian dollars. Tomorrow that hockey card may be orth less or more than one hundred canadian dollars. But my $100 bill will always be worth at least one hundred canadian dollars. I say "at least" because a collector may be willing to pay more for it if, for example, it is rare in some way... but it will never be worth LESS because it is too common. This is the extrinsic value of my $100 bill.
No one can guarantee that one hundred canadian dollars will be worth anything tomorrow, though. As you say, there is no guarantee that I will be able to exchange one hundred canadian dollars for any good or service.
The government guarantees that my $100 bill will be worth one hundred canadian dollars.
This may be true in some sense for Bank of Canada notes issued prior to June 23, 1936, and certain chartered bank notes issued prior to 1950. [Bank of Canada Act, Sec. 25.5, 26.1, 26.2]
It's unclear to me what, if any, guarantee the government provided for bank notes issued more recently than that.
Here are a couple more sections from the Bank of Canada Act:
25. (1) The Bank has the sole right to issue notes and those notes shall be a first charge on the assets of the Bank.
25. (6) Notes of the Bank are neither promissory notes nor bills of exchange within the meaning of the Bills of Exchange Act.
Also, as you said elsewhere (and correctly so IMO) that a Canadian dollar is an abstract concept, whereas a bank note is a physical object. Are you saying that the government is providing some kind of guarantee that a particular physical object represents a particular abstract concept?
It seems to me that providing such a guarantee would either be impossible to do, or exceptionally easy to do, depending on how you see it.
As with many things, Homer probably says it best. 8)
[code:1:80ae52591c]Homer: Hmm...ow, pointy!
Eww, slimy.
Oh, moving!
Ah-ha! [looks, then says remorsefully] Oh, twenty
dollars...I wanted a peanut!
Brain: Twenty dollars can buy many peanuts!
Homer: Explain how.
Brain: Money can be exchanged for good and services. [/code:1:80ae52591c]
Comments
I did find the information about the requirement for banks to cash government cheques; also, the fact that banks must open a retail account for someone (except under exceptional circumstances--- suspicion of illegal activity, etc). However, I couldn't find any reference to the fact that a bank is required to accept physical currency (bank notes, etc) specifically for deposit into a retail bank account.
Even if such a law is there somewhere, the fact that banks must accect bank notes for deposit still would not mean that bank notes have intrinsic value. It would simply mean that they were legally obligated to put bank notes into some sort of "storage" for you.
ScottyZ
Hmm... ok, there was a slight assumption there on my part. I assumed that since they had to open a deposit account for you, they also had to accept deposits from you (otherwise, really, what's the point). After a quick scan through it again I actually couldn't find anything saying that they had to accept deposits (which is not to say that it is not in there... just that I couldn't find it). Now, I'm no lawyer, but I would guess that that's a reasonable legal interpretation. It would be bizzarre, to say the least, if the bank was required by law to let you open a deposit account, but were NOT required to let you use that deposit account to make deposits.
Hmm... no. It's a little different. That is what makes the bank notes legal tender. A $100 bill is a piece of paper with certain characteristics. But, when you deposit this $100 bill, they do not credit your account with "One piece of paper that has certain characteristics". They credit your account with "One hundred canadian dollars". There is a difference between depositing $100 into your account, and putting a $100 bill into a safety deposit box.
I guess this is what I have been saying all along. The fact that the bank note is legal tender DOES give it intrinsic value. It gives the bank note an instrinsic value of one hundred canadian dollars. Whether or not one hundred canadian dollars is worth anything is another, unrelated matter, and is subject to change.
Keith
Well, they convert it into another form for record keeping purposes, and efficient storage. This endows on the original thing you gave the bank no more or less intrinsic value.
I don't see much difference, except possibly ease of access or storage fees.
I don't think this is unrelated. In fact, anywhere I've said that bank notes have no intrinsic value, you could replace that notion with the fact that Canadian dollars have no intrinsic value.
You might be getting at the idea when you say the worth of Canadian dollars is "subject to change". If you are referring to the fact that $100 Canadian dollars might be worth 100 loaves of bread today, but possibly a different amount of loaves one year from now, you are now talking about money having extrinsic value, not intrinsic value.
ScottyZ
But it does! It means that that piece of paper has an instrinsic value of $100.
There is a huge difference. When you put the bank note into a safety deposit box, the bank is storing that physical piece of paper for you. When you go back next month, you have the right to get that exact same piece of paper back from them.
On the other hand, when you deposit a $100 note into your bank account, they take that piece of paper from you, and in return, they credit your account with the intrinsic value of that piece of paper... one hundred canadian dollars. That piece of paper is no longer yours... you can't come back next month and ask for the same piece of paper.
Basically, it demonstrates the difference between the physical piece of paper, and the instrinsic value which is assigned to that piece of paper.
Well, there is a difference between the two statements. There is a difference between canadian dollars, and the bank notes/coins which represent canadian dollars. The first is an abstract concept, while the second is a physical object. The fact that the notes are legal tender is what connects the two concepts.
Keith
Perhaps this is simply turned into semantics and terminology.
As you were referring to, most people are perfectly happy to give the bank a $100 bill for deposit into their bank account, in full recognition of the fact that it is unlikely that they will get that exact same bill back later. This actually clearly demonstrates that a bank note has *no* intrinsic value. If it did have some kind of intrinsic value, people would never give it up so easily. That is, in the case of intrinsic value, people would strongly prefer the safety deposit box storage rather than the deposit on account method.
I found the following explanation of intrinsic vs. extrinsic value which captures the comparison between these well:
http://en.wikipedia.org/wiki/Value#Economics
ScottyZ
Yeah I think we got there a long time ago. That tends to happen. On the good side, I should be getting that magazine subscription pretty soon
Ok, I was using the term "intrinsic" incorrectly. Technically, the value that a $100 note has is extrinsic, since it comes from an external source, namely, the government. But, I still think that my point here is valid, namely, that it is worth distinguishing between the currency and the physical notes/coins which represent that currency. The fact that the notes/coins are "legal tender" is what connects the two concepts. Tomorrow, my crispy new $100 bill may not be able to buy a loaf of bread, but it will still be worth $100.
Keith
I guess so, but what if it does turn out like that? Let's say that tomorrow, no-one will give you a loaf of bread (or anything) in exchange for Canadian money. [For example, in the worst case of a currency crisis and/or hyperinflation.] Does it really have any meaning to say that your bank note is "worth $100" in that case?
I guess this has been one of my main points. A bank note doesn't have value on its own (i.e. intrinsic value). A bank note does have extrinsic value, which may or may not be the same in the future. (Inflation a simple example of this phenomenon.)
To be completely exact, I should instead say that most people *believe* that Canadian bank notes have extrinsic value, and if you really think about it, this is precisely where that extrinsic value comes from.
Currency may very well be the world's largest religion. And it's a good thing we're all believers. 8)
ScottyZ
I don't think the extrinsic value of a bank note comes from the government.
The extrinsic value of something represnts its potential usefulness. The extrinsic value of a bank note comes from the expectation that it may be exchanged for goods or services in the future. That's got nothing to do with the government.
To be very explicit, the government provides no guarantee that your $100 bill will be exchangeable for any particular good or service in the future.
ScottyZ
The government guarantees that my $100 bill will be worth one hundred canadian dollars. They will not turn around tomorrow and say, whoops, we printed too many $100 bills, they're only worth ninety canadian dollars each now because of supply and demand. This is what makes a $100 bill fundamentally different from, say, a hockey card which is worth one hundred canadian dollars. Tomorrow that hockey card may be orth less or more than one hundred canadian dollars. But my $100 bill will always be worth at least one hundred canadian dollars. I say "at least" because a collector may be willing to pay more for it if, for example, it is rare in some way... but it will never be worth LESS because it is too common. This is the extrinsic value of my $100 bill.
No one can guarantee that one hundred canadian dollars will be worth anything tomorrow, though. As you say, there is no guarantee that I will be able to exchange one hundred canadian dollars for any good or service.
Keith
This may be true in some sense for Bank of Canada notes issued prior to June 23, 1936, and certain chartered bank notes issued prior to 1950. [Bank of Canada Act, Sec. 25.5, 26.1, 26.2]
It's unclear to me what, if any, guarantee the government provided for bank notes issued more recently than that.
Here are a couple more sections from the Bank of Canada Act:
Also, as you said elsewhere (and correctly so IMO) that a Canadian dollar is an abstract concept, whereas a bank note is a physical object. Are you saying that the government is providing some kind of guarantee that a particular physical object represents a particular abstract concept?
It seems to me that providing such a guarantee would either be impossible to do, or exceptionally easy to do, depending on how you see it.
As with many things, Homer probably says it best. 8)
[code:1:80ae52591c]Homer: Hmm...ow, pointy!
Eww, slimy.
Oh, moving!
Ah-ha! [looks, then says remorsefully] Oh, twenty
dollars...I wanted a peanut!
Brain: Twenty dollars can buy many peanuts!
Homer: Explain how.
Brain: Money can be exchanged for good and services. [/code:1:80ae52591c]
Mmmm...peanut.
ScottyZ
just give me LOTS of new crisp $100 bills and i'll be happy