Understanding the Distinction: What the Central Bank Prints—Money or Currency

The central bank of any country is often involved in the process of printing currency, not money. This might sound like a nitpick, but it is a crucial distinction that can help clarify several economic and financial concepts. Let's delve into what this means and how it impacts the economy.

The Process of Currency Printing

When a central bank makes decisions about printing currency, it essentially refers to the physical creation of money. The process involves determining how much money to mint and then making it available for circulation. However, there's a difference between this process and issuing currency, which is the act of distributing that physical money to the public either in digital or physical form.

Printing vs. Issuing Currency

The term 'printing' is often used interchangeably with 'issuing currency,' but there is a subtle but important distinction. Printing refers to the physical creation of money that can be sent to private entities, such as banks or businesses. Issuing currency, on the other hand, is the process of distributing that money to the public in a denominated form, either digitally or as physical cash.

For example, when a central bank "prints" a trillion dollars, it means it is creating a trillion in physical currency that is available to be dispersed. However, this doesn't imply that the trillion is immediately in circulation. It just means that the central bank has the capacity to distribute it as needed.

The Digital Era and Fiat Currency

Today, the distinction becomes even more challenging with the rise of digital numbers on screens versus physical currency. With the advent of digital transactions, it is possible to add or subtract value with just a swipe of a screen. This brings its own set of complexities and perils, such as the loss of tangible value and the increasing importance of cybersecurity.

Moneys and Currencies

In layman's terms, the terms 'money' and 'currency' are often used interchangeably. However, when we carefully examine the distinctions, the terms refer to different concepts:

Money vs. Currency

Money: Intangible but serves as a store of value. Currency: Tangible and not a store of value.

Money: Refers to the intrinsic value of goods or services and can be quoted in a specific currency. It performs various functions in an economy, such as storing value, facilitating transactions, and acting as a unit of account.

Currency: Is a medium for exercising purchasing power. It is simply a tool that people use to buy goods and services, but it has no intrinsic value. Instead, its value comes from the trust placed in it by the public and the government.

The Role of the Central Bank

The central bank's role is to ensure that there is a functional and trusted medium of exchange in the economy. By printing and distributing tangible currency, the central bank creates a medium through which economic transactions can occur. However, the value of currency is not derived from the physical piece of paper or digital transaction; it is derived from the economic and legal backing of the government.

Conclusion

While central banks can print and release currency to the public for the purpose of facilitating transactions and providing a medium of exchange, it is the tangible currency that is actually in circulation. Understanding this distinction is crucial for comprehending economic policies and financial transactions.

Keywords: central bank, money, currency, printing, circulation