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Types of Money and Money Producers

Types of Money and Money Producers

Modern money is usually divided into several types called monetary aggregates. While different countries define monetary aggregates differently, the various classifications are similar: cash, current bank accounts, saving accounts, etc.

For the purposes of this book, we will consider the money stock structure from the money producers’ viewpoint, distinguishing three types of money:

  1. Money of the Central Bank
  2. Money of the banking system
  3. Government bonds

 

Money issued by the Central Bank includes cash and balances on accounts opened at the CB. In the United States, the role of the Central Bank is performed by the Federal Reserve System. Hereinafter, by saying Central Bank or CB we will mean any state issuing bank, regardless of its national name.

Money of the banking system consists of balances on personal and corporate current and savings accounts (including bank card and checking accounts) opened at commercial banks.

Government bonds are securities issued by the Treasury. In many countries, the Treasury is called Ministry of Finance. Hereinafter, by saying the Treasury we will mean any government agency in charge of managing state income and expenses, regardless of its national name. Formally, Treasury bills and bonds are not included in monetary aggregates in all countries. However, as we will see later, investors take government bonds for a currency to an even greater extent than bank accounts, so there is no reason not to view them as a type of money.

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