Money & Banking Question

Discussion in 'Economics' started by Economist123, Feb 18, 2011.

  1. Hey,

    I have to answer the following question in my Money & Banking course and I am having some difficulties with that. Does anyone have an idea what the answer could be?

    Question 1 (30 points):
    US Treasury bills are very short term bonds backed by the US Federal Government.
    Their short maturity implies that differences in face value and price are small. Why do
    you think US Treasury bills are not accepted at grocery stores to purchase food?

  2. The simple answer is '' Logistics ''

    T-Bills are issued at face values of $1000 , and government issues them by the Billions. Their Real Time value depends on its current interest rate. To convert them one would have to know its repurchase value (on the bond market) which constantly fluctuates.

    Furthermore....imagine our friend Bearice making a purchase of a pound of sugar at a mom & pops store with a $1000 T-Bill . The store owner would have to keep 995 Dollars for change... multiply that and there could be problems.

    There are a list of reasons and this is not be the total answer your examiner is looking for , but it is certainly one of the reasons.
  3. Because this would violate the whole point of money. It would also violate the separation of fiscal and monetary mandates.
  4. deucy28


    A treasury note is not legal tender.

    (1) The grocer is not obligated to take it in trade.

    (2) The grocer may take it in trade if the grocer wished to, in the same manner as if the grocer was willing to take beads, your old car, or any wampum.

    The "logistics" argument does not have merit should the grocer discount the value of the note appropriately for his logistical processing (handling) and costs (commission paid to redeem) and added margin of profit and market risk.

    This response is worth 30 points and 10 more bonus.

    deucy 28