Today, money is termed fiat money. This just means that it has value only because it is given legal status (the law makes it so). It only includes:
· Currency – pieces of paper manufactured by the government to put in your wallet (dollar bills)
· Deposits – money people put into bank accounts, credit unions etc.
Money does not include:
· Credit Cards
· Debit Cards
· Currency inside of the bank
The Federal Reserve System (Fed) and Its 4 Most Important Functions
The Fed serves many functions in the US economy, but its four most important are:
1. The Fed regulates the money supply in circulation
2. The Fed supplies the economy with paper currency and coins
3. The Fed provides a system for check collection and clearing (it acts just like your bank but instead of holding deposits for people, it holds the deposits of individual banks).
4. The Fed holds reserves for most of the nation’s banks, savings, and loans, credit unions etc. All depository institutions are required by law to keep a certain amount of their deposits on hand, held in an account at the Fed.