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From this link, I saw something relating to "sovereign money"

Sovereign money is legal tender, on hand or on account as well as on mobile storage device, in the future maybe also in the form of so-called cryptocoins....Today, sovereign money exists in the form of cash (coins and banknotes) and non-cash central-bank money, called reserves

For a better understanding of what sovereign money is and what it implies, it is useful to compare it with bankmoney. Normally, bankmoney is as liquid as sovereign money, i.e. available any time on demand. But sovereign money does in fact exist; it is the safe property of the customer who owns the money. Bankmoney, by contrast, is not money proper, not legal tender, but just a claim on money, a claim on having paid out cash. Bankmoney is but a balance-sheet item of a bank, thus basically unsafe and unstable. In a banking crisis, money in a bank account might disappear.

From reading these definitions, I got lost regarding distinguishing "bank money" and "sovereign money". Is there any intuitive way to understand these two concepts separately? From my understanding, we can distinguish that bank money is the bank deposit, the "paper" that bank claim that we have money in their system. The sovereign money is the coin, cash-at-hand, something protected by the government. For example, when the bank goes bankruptcy, the 'bank deposit" (bank money) is invalid, but the cash and coins (sovereign currency) still remain their own value. It also explains why the sovereign currency is legal tender but bank money. I am wondering whether it is a correct understanding.

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Sovereign money can be considered an "everlasting" token, either physical or electronic. It gets created by the government and can circulate in the economy essentially forever more unless the government decided to withdraw it for some reason.

An example of an everlasting token would be coins.

Bank money can be considered a "spendable IOU". These get created by private banks when loans are made and expire when the loans are repaid. During their temporary existence they can circulate in the economy. Bank money is continuously being created and destroyed and so the total amount of it in the economy will go up and down depending on the rate at which new loans are being taken out compared to the rate at which preexisting loans are being paid back.

An example of a spendable IOU would be the type of money that got transferred if you wrote somebody a cheque or made a debit card payment. And talking of examples, I should mention that spendable IOUs have an amazing number of alternative names you may see in the literature: "credit", "demand deposits", "sight deposits", "bank money", "checkbook money", "inside money", "broad money", "bank liabilities".

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  • $\begingroup$ Thanks Mick. Is there any example to clarify it, please? $\endgroup$ Commented Nov 19, 2021 at 22:07
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    $\begingroup$ See edits to my answer. $\endgroup$
    – Mick
    Commented Nov 19, 2021 at 22:41
  • $\begingroup$ I am a little bit confused here. So, cash note is not sovereign money just because it is not token? But cash note has all the properties of sovereign money right? $\endgroup$ Commented Nov 19, 2021 at 22:45
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    $\begingroup$ Cash notes are a grey area - it's a long messy story - too long for this forum. Coins are a more clear cut example. $\endgroup$
    – Mick
    Commented Nov 19, 2021 at 22:51

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