Money in the modern economy: an introduction

Quarterly Bulletin 2014 Q1
Published on 14 March 2014

By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.

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.

PDF Money in the modern economy: an introduction

This short video, filmed in the Bank of England’s gold vaults, explains what money is in the modern economy

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