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Characteristics of cash – Knowledge of money & loans

 

Money defines itself as a value equivalent, which in particular has the function of a means of payment, a store of value as well as a measure of value or an arithmetic unit. Money can exist in material and immaterial form. In material form, banknotes and coins embody cash. Until 1915, the term cash was only assigned to the Kurant coin in Germany. A Kurant coin was particularly characterized by the fact that its value corresponded to that of the metal from which it was made. Cash is the legal tender in almost every country in the world. Despite the fact that the trend towards cashless payments is increasing, cash is the most accepted form of payment. The cash is produced by the central banks of the countries or community of states in the world in their own currency and put into circulation through the commercial banks.

Characteristics of cash

Characteristics of cash

Cash is issued in banknotes and coins in the currency of a state. An advantage of cash is that it is largely available to everyone and can be used flexibly and almost everywhere in everyday life. Compared to book money and electronic money, cash cannot be observed and controlled in detail in its circulation. Indirect exchange can be carried out as cash as a means of payment. This affects both a good for cash and, conversely, cash for a good. In everyday life, cash is used especially for purchases on site or when going out to a restaurant, a bar, at events or for the use of transport.

Cash is also very popular as a store of value, especially for reasons of caution and security, as it ensures continued liquidity in the event of an unexpected payment or loss of income. But speculation is also one of the motives for using cash. Money and cash serve as a measure of value and have the property of an arithmetic function. The value of a monetary unit defines the purchasing power of the money. Cash as well as book money and electronic money are issued in the currency of a country, which are valued differently worldwide. The currency is defined as a guarantee and is explained in the order of a state’s monetary system.

This is how cash is presented in the form of banknotes and coins in a specific currency. Cash has the properties that it is easy and easy to transport, and is also durable and also suitable for storage. In addition, due to its grading of banknote and coin values, cash is divisible, exchangeable and calculable, so that billing processes are possible. The cash issued by the central banks is stable in value in the form of both banknotes and coins, generally safe from counterfeiting, and is widely recognized in commerce and society. Cash also has a limited amount of existence as it affects its value, purchasing power, and desire for people to own it.

Banknotes and coins

Banknotes and coins

Coins and banknotes serve as cash. A coin is a thin coin made of metal, which usually consists of a metal alloy. Coins are made by minting coins. At present coins have at least three inscriptions. This is the respective country, the value including nominal and currency unit as well as the year of minting. Deviations and other content may exist. In the case of euro coins, for example, the country itself is not named, but only contains an identification mark of the country on the back of the coin. Money coins are also gladly collected. In addition to their market value, they also have a collector’s value.

Banknotes are a form of payment in paper form. Each nation has its own banknote, which is usually issued by the respective central bank. Banknotes used to consist of paper, and some of them still do today. However, they can also be made from other materials. For example, the euro banknote consists of pure cotton. Banknotes also contain a number of security features. These include, for example, watermarks, holograms, intaglio prints, security threads, registers as well as specific overprints, colors, sizes, micro fonts, patterns, styles and special information. The aim is not to be able to reproduce banknotes or to make them copyable in the sense of forgery. Each country usually issues both banknotes and coins.

Money creation, money supply and cash in circulation

Money creation, money supply and cash in circulation

In the context of money creation, cash can only be created by a central bank of a state. Creating money is called creating money. In contrast, book money and deposit money can be created by central banks and commercial banks. Cash is circulated through the granting of loans, the purchase of assets by commercial banks and subsequent account withdrawals at a bank counter or at ATMs. The bank account balance is a claim for cash. A deposit of cash at the bank leads to solvent book money through the account balance. The cash deposited remains in the banking system for the time and runs from account to account as a means of payment until a bank pays this money out again as cash. Cash is converted into sight deposits. The money supply defines the complete amount of money that exists with non-banks.

Cash, along with sight deposits as defined by the European Central Bank, belongs to the M1 money supply. The money supply M1 is aimed at the medium of exchange of money. It includes cash in circulation and daily deposits, which can be used as a means of payment at any time. The amount of cash in circulation depends on numerous factors. These include the inflation rate, economic performance and the structure of the banking system. In retail, the amount of cash that is intended for payment at banks is defined as bank money. In contrast, there is change. Due to the increasing trend towards cashless payment transactions, cash in circulation may decrease.

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