Kinds of Money

Money can be classified in three general categories, although some of these have further sub-classifications: metallic money, paper money, private bank money.

Metallic Money

Metallic money today consists of the various coins in circulation. At one time gold and silver bullion was considered money, but this is no longer true. Both gold and silver have been demonetized and hence are looked upon as commodities, like wheat or cotton. In the United States the coins in circulation today are issued by the U. S. Treasury.

Paper Money

Paper money in the United States consists primarily of Federal Reserve Notes, issued by the Federal Reserve System. There are also a few U. S. Notes, issued by the U. S. Treasury, in circulation. These notes, a historical anachronism, were first issued by the Treasury in 1862 to help finance the Civil War and have been reissued to replace worn-out notes. They are printed mainly in denominations of $100.

These two types of paper money are the only ones issued in the United States today. However, several other types of paper money were issued earlier, and while they have been withdrawn from circulation, some are still outstanding, presumably in the hands of collectors. These are (1) silver certificates, (2) Federal Reserve Bank Notes (not to be confused with Federal Reserve Notes), (3) National Bank Notes, and (4) gold certificates.

Silver certificates were issued by the Treasury until the mid-1960's in denominations of $1, $5, and $10, and were backed by silver. Each of the 12 Federal Reserve Banks was authorized to issue Federal Reserve Bank Notes when the system was established in 1913. The issue ended in 1945. National Bank Notes were issued by nationally chartered banks from 1863 to 1929. They were the main currency until the coming ot the Federal Reserve System in 1913. Gold certificates were placed in general circulation for the first time in 1882. They were withdrawn from circulation when the United States left the gold standard in 1934.

Private bank money

Private bank money is sometimes called checkbook money as well as demand deposits. It represents by far the bulk of the money supply in the United States today. Some of it comes into existence when banks make loans, and some when deposits are made. The amount of checkbook money that banks are permitted to create is carefully controlled by the Federal Reserve System. Banks must keep reserves behind these deposits, and the total volume of checks is regulated by controlling these reserves.

Private bank money is fully and immediately convertible into currency and coin-hence the term "demand deposit." Most financial payments today are made by way of these deposits because they are easy, convenient, and provide for flexibility in making payments.

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