Money in the Modern Economy: An Introduction

10 Pages Posted: 27 Mar 2014

See all articles by Michael McLeay

Michael McLeay

Bank of England - Monetary Assessment and Strategy Division

Amar Radia

Bank of England

Ryland Thomas

Bank of England - Monetary Analysis

Date Written: March 14, 2014

Abstract

Money is essential to the workings of a modern economy, but its nature has varied substantially over time. This article provides an introduction to what money is today. Money today is a type of IOU, but one that is special because everyone in the economy trusts that it will be accepted by other people in exchange for goods and services. There are three main types of money: currency, bank deposits and central bank reserves. Each represents an IOU from one sector of the economy to another. Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves.

Suggested Citation

McLeay, Michael and Radia, Amar and Thomas, Ryland, Money in the Modern Economy: An Introduction (March 14, 2014). Bank of England Quarterly Bulletin 2014 Q1. Available at SSRN: https://ssrn.com/abstract=2416229

Michael McLeay (Contact Author)

Bank of England - Monetary Assessment and Strategy Division ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Amar Radia

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Ryland Thomas

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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