I have heard from my friend that US federal reserve notes (aka dollar bills) are not actually money, but merely currency. He told me that money and currency are different, and that money is currency with some extra properties. That is, all money is currency, but not all currency is money. What is the truth of this? Is it the case federal reserve notes are merely currency, and not money as is usually thought?

  • $\begingroup$ Not all money is currency, either. I think. Are gold bars currency? $\endgroup$ Commented Feb 2, 2021 at 9:58
  • $\begingroup$ (Conversely, user253751bux are non-money currency. Here, I put a billion in your account for you.) $\endgroup$ Commented Feb 2, 2021 at 9:58

4 Answers 4


Federal notes are both money and currency.

Currency can have two meanings:

  1. In context of foreign exchange rate currency might simply refer to a system of money in common use in a particular country. That is, when discussing foreign exchange all USD, GBP, RMB etc are considered currencies.
  2. Outside foreign exchange, currency means notes and coins in circulation. However, again currency is still money.

Money is more broad term in economics for a thing that serves as medium of exchange, unit of account and store of value (see Mankiw Principles of Economics 8 ed. pp 604). Consequently, money can be viewed as a sort of 'umbrella' term that encompasses currency but also much more. That is all currency is money but not all money is currency. For example, money on deposit account will be considered money but not currency. Checks are also money but not currency. In addition, broad money will include also assets that can be easily converted to traditional money such as treasury bills.

However, most of money does not have special extra properties vis-a-vis currency. There is little practical difference between money in your wallet and money on your deposit account. Sure deposit accounts with debit cards might be more convenient (take less space, most cards now have contactless pay etc) but economically they are not special. This being said when discussing broad money, such as T-bills, you could justify saying they have extra properties as well.


Currency, in the form of Federal Reserve Notes, is a component of money supply measures in the United States.

The monetary base includes currency and reserve balances that banks have on account at the Federal Reserve. These are Federal Reserve liabilities.


The M1/M2 money supply includes currency and other liabilities of banks.


The money supply measures reflect the different degrees of liquidity—or spendability—that different types of money have. The narrowest measure, M1, is restricted to the most liquid forms of money; it consists of currency in the hands of the public; travelers checks; demand deposits, and other deposits against which checks can be written. M2 includes M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds.

The chart below shows the relative sizes of the two monetary aggregates. In April 2008, M1 was approximately 1.4 trillion, more than half of which consisted of currency. While as much as two-thirds of U.S. currency in circulation may be held outside the United States, all currency held by the public is included in the money supply because it can be spent on goods and services in the U.S. economy. M2 was approximately 7.7 trillion and largely consisted of savings deposits.

Money Supply Measures Sept 2001

In March 2006, the Board of Governors ceased publishing the M3 monetary aggregate.


The short answer is currency (in everyday use) means paper money and coins in circulation, while money means something that serves as a means of payment, a store of value, and a unit of account.

So: Federal reserve notes are a form of currency, but not the whole of currency, since coins are included, too.

Also, Federal reserve notes are a form of money, but not all of money, because (for example) a bank balance in your checking account is also money.


Not knowing how your friend defines "currency" as opposed to money. All I can offer is that there are four different types of money issued in the United States.

  1. Coins - physical money created and issued by the U.S. Treasury and sold at face value to the Federal Reserve, which books coins as an asset on its balance sheet. Unlike the other three forms of money I will outline in this answer, coins are issued without any corresponding debt attached to them. Coins are legal tender, meaning that they can be used to pay, "all debts, public charges, taxes, and dues." 31 U.S.C. § 5103.
  2. Cash - aka, Federal Reserve Notes, is physical money issued by the Federal Reserve (though created by the Treasury's Bureau of Engraving and Printing at the Fed's instruction) and sold by the Fed at face value to commercial banks, which pay for cash using their reserve accounts at the Fed, which get debited in the amount of cash obtained. Cash is one of two liabilities on the Federal Reserve's balance sheet, and an obligation of the U.S. government. Cash is legal tender, meaning it can be used to pay, "all debts, public charges, taxes, and dues." 31 U.S.C. § 5103.
  3. Reserves - this is electronic money created and issued by the Federal Reserve in exchange for U.S. government bonds and bills, that is, IOUs from the U.S. government. Reserves are the second liability on the Federal Reserve's balance sheet, but reserves are assets to commercial banks and other entities that bank with the Fed, including the U.S. government and foreign central banks. Reserves, that is, Fed liabilities or IOUs, are money only for these entities, and exist only as the result of government debt. The amount of reserves in the system is controlled by the Federal Reserve, which increases reserves by buying government bonds or agency mortgage-backed securities and decreases reserves by selling government bonds or agency mortgage-backed securities. Reserves are not legal tender.
  4. Bank money - this electronic money created and issued by commercial banks in exchange for debt, public or private, taken by borrowers from the bank, whose electronic accounts at the bank are credited in the amount of their new loan. Bank money is a liability to commercial banks but is an asset to non-bank entities who bank at commercial banks, including people, non-financial businesses, non-bank financial businesses, and governments...bank money, that is, a commercial bank liability or IOU is money for these entities. The amount of bank money in the system is controlled by commercial banks, which increase bank money bu buying debt, crediting bank accounts in exchange for loan paper, and decrease bank money by not issuing new debt as old debt gets paid off. Bank money is not legal tender.

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