ABSTRACT
This chapter examines the nature of money and the operation of people banking system. Money is the set of assets in the economy that people use regularly to purchase goods and services from others. Money has three functions in the economy: It is a medium of exchange, a unit of account, and a store of value. These functions distinguish money from other assets such as stocks, bonds, and real estate. The basic money supply in the United States consists of coins, paper money, checking accounts, and traveler's checks. Under federal law, only the Federal Reserve System can issue paper currency, and only the US Treasury can issue coins. Checking account money is created by the banking system. A commercial bank is a corporation that seeks to make a profit for its stockholders. Among the most important assets of a bank are its reserves, loans, and government securities. Deposits and borrowings are a bank's major liabilities.
