Economists, financial analysts and government officials talk about money and its role in the economy. Consumers can hear these statements on the evening news, but they do not really understand what commentators refer to when they talk about money. Basically, the money supply in the United States consists of currencies, checking accounts, traveller’s checks, money market funds and savings deposits.
Paper money and coins are the currency of the nation. The Bureau of Engraving and Printing, a division of the United States Department of the Treasury, prints more than 25 million pieces of paper each day during 2010. Most of these tickets replace those that were removed from circulation and destroyed. When the supply of money in circulation increases, the value of each dollar decreases, causing prices to rise. When the supply of money in circulation decreases, the value of each dollar increases causing prices to fall.
Depositors leave their money in current accounts in banks and credit unions. Checking accounts give the depositor the ability to write checks or use debit cards to make financial transactions. The depositor can access the funds, as long as they are available in the account. The balance of the depositor’s account represents a part of the nation’s money supply.
Consumers buy traveller’s checks from financial institutions to use them instead of the currency. Traveller’s checks are accepted at companies throughout the country. Many consumers buy traveller’s checks when they go on vacation to reduce their need to carry cash. Travellers’ checks provide some protection to consumers since the financial institution can substitute checks if they are lost or stolen.
Money Market Funds
Money market accounts operate in a similar way to checking accounts. Consumers deposit funds in a financial institution. The financial entity invests these funds and pays a refund to the consumer. The consumer usually has checks or debit card privileges associated with their money market account.
Consumers open savings accounts in financial institutions and deposit money in them. The financial institution has the money for the consumer and pays the interest to the consumers for keeping the money. The consumer has no checks or debit card privileges. The consumer can withdraw money from that account, either at the financial institution or through the use of an ATM.