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March 28, 2024 

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ADB: An abbreviation that stands for either the African Development Bank the Asian Development Bank. The African Development Bank is a regional multilateral development institution engaged in promoting the economic development and social progress of its member countries in Africa. The Bank, established in 1964, started functioning in 1966 with its Headquarters in Abidjan, Cote d' lvoire. The Bank borrows funds from the international money and capital markets. Its shareholders are the 53 countries in Africa as well as 24 countries in the Americas, Europe, and Asia. The Asian Development Bank is a multilateral development finance institution dedicated to reducing poverty in Asia and the Pacific that engages in mostly public sector lending for development purposes in its developing member countries. They pursue this goal by helping to improve the quality of people's lives providing loans and technical assistance for a broad range of development activities. ADB raises fund through bond issues on the world's capital markets but they also rely on members' contributions. The ADB was established in 1966 and has its headquarters in Manila, Philippines. As of September of 2003, the ADB had 58 member countries.

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PLASTIC MONEY:

A slang phrase for credit cards, especially when such cards used to make purchases. The "plastic" portion of this term refers to the plastic construction of credit cards, as opposed to paper and metal of currency. The "money" portion is an erroneous reference to credit cards as a form of money, which they are not. Although credit cards do facilitate transactions, because they are a liability rather than an asset, they are not money and not part of the economy's money supply.
Credit cards are often referred to as "plastic money" because they facilitate transactions and make it possible to purchase goods when currency and checkable deposits are not available. However, while credit cards are in fact made of plastic, they are not in fact money. Money is an asset. Credit cards are a liability. Credit cards are only a intermediate step when used to make purchase. The purchase is eventually completed when the credit card liability is paid off... with currency or a check... with money.

Four Money Functions

To see why credit cards are not money, are not part of the economy's money supply, consider two of the four functions of money--medium of exchange and store of value.
  • Medium of Exchange: Credit cards do (sort of) function as a medium of exchange. Like currency and checkable deposits, they facilitate the purchase of goods and services. Suppose that Jonathan McJohnson heads off to Natural Ned's Nursery and Garden Center to purchase a lawn sprinkler, some fertilizer, and assorted shrubbery. Jonathan can make this purchase by laying down a handful of Federal Reserve notes and U.S. Treasury coins (currency) or by scribbling out a check for the amount of the purchase (checkable deposit). However, if Jonathan lacks access to these, he can whip out his plastic money (credit card) in the from of his OmniBank Platinum Diamond Express. Any one of the three allows the Jonathan to leave the nursery with his commodities. Credit cards, like currency and checkable deposits, function as a medium of exchange.

  • Store of Value: But, credit cards do not function as a store of value. Credit cards are a liability. Liabilities cannot store value. Only assets can store value. To store value and function as money, a medium of exchange must also be an asset. This excludes credit cards from being money... plastic or otherwise. Jonathan's credit card purchase of lawn sprinkler, fertilizer, and assorted shrubbery creates a liability which is ultimately paid off with money... with currency or checkable deposit.

Asset for Asset

So, what happens when a credit card is used to make a purchase?

To answer this question, first consider a standard money purchase. If Jonathan McJohnson pays cash for his shrubbery purchase, then he trades one asset (currency) for another asset (shrubbery). Money purchases involve the exchange of one asset for another.

A credit card purchase does not work the same. A credit-card purchase only defers the ultimate exchange of asset for asset by creating a liability. The buyer receives an asset and the seller receives the promise of receiving an asset at a later time.

If Jonathan buys his shrubbery with his OmniBank Platinum Diamond Express credit card, then he trades a liability (credit card) for an asset (shrubbery). Jonathan does not give up an asset, at least not right away, but he does incur a liability, the balance on his OmniBank Platinum Diamond Express credit card.

A credit card purchase works like this. Jonathan receives his shrubbery--an asset. In exchange, Natural Ned's receives the promise of future payment--a liability. This liability is likely transferred to the credit card issuing company, OmniBank, when they process the transaction by sending Natural Ned's the money for the purchase and increasing the balance on Jonathan's OmniBank Platinum Diamond Express credit card.

But a liability remains. Jonathan has traded a liability for an asset. This transaction is completed only when Jonathan gives up an asset, that is, once he pays off the balance on his OmniBank Platinum Diamond Express credit card. This payment is accomplished by sending the OmniBank some money, either currency or a check.

The credit card purchase has only deferred the eventual asset for asset exchange. Ultimately, Jonathan exchanges an asset (money) for another asset (shrubbery).

A Word about Debit Cards

While credit cards fail to meet the standards for money, plastic or otherwise, what about their close cousins, debit cards? Debit cards, also termed ATM cards or check cards, look very much like credit cards. They have the same 2 1/8" x 3 3/8" size as credit cards. They are made of plastic like credit cards. They have embossed numbers like credit cards. Many have logos of credit card companies (Visa and MasterCard) like credit cards. And, most important, they are processed by store clerks just like credit cards.

But unlike credit cards, debit cards really do qualify as "plastic money." Debit cards, like paper checks, access funds from a checking account. A debit card is processed by decreasing an asset, the checking account balance, just like writing a check. A credit card is processed by increasing a liability, the credit card loan balance.

So, while the term "plastic money" was erroneously coined to mean credit cards, the advent of debit cards has created a mechanism that really is "plastic money."

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Recommended Citation:

PLASTIC MONEY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: March 28, 2024].


Check Out These Related Terms...

     | monetary aggregates | M1 | M2 | M3 | L | currency | checkable deposits | near monies | Federal Reserve notes | seigniorage |


Or For A Little Background...

     | money | money functions | money characteristics | fiat money | commodity money | medium of exchange | store of value | liquidity |


And For Further Study...

     | money creation | fractional-reserve banking | banking | Federal Reserve System | monetary economics | monetary base | monetary policy | debit card | monetary economics |


Related Websites (Will Open in New Window)...

     | Federal Reserve System | Federal Reserve Education | U.S. Department of the Treasury | The Currency Gallery |


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