We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Money Circulation?

Patrick Wensink
Updated Jan 31, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Money circulation is the process of creating, distributing, collecting and destroying currency. This is done to ensure a specific money supply is available to a country's citizens and also to ensure the money in circulation is not defective or counterfeit. Each step of the process involves government officials and banks working together, focusing on both paper and coin currency.

The first step in the money circulation process is actually printing banknotes, either as coins or bills. Many countries have a specific government department that handles this function; for example, in the United States, the United States Treasury and the Federal Reserve are in charge of printing money. These offices determine how much money needs to be available, or "in circulation," to the general public. When there is too much money, these offices pull currency out of circulation and when there is not enough, they print more. One example of this process happens when a nation prints more money before a shopping holiday season, such as Christmas, to account for added transactions and then removes that added currency after the holiday.

Distributing the currency is the next part of the money circulation process. After coins and bills are produced, they usually are sent to large government-owned banks. In the United States, these are known as federal banks, for example. Private banks get the money supply they use to operate from these large banks, mostly on the credit system. Once currency is held by a bank, it is distributed through ATM machines and by bank tellers to customers. From this point the coins and bills are used and reused for transactions by the general public.

After money has been in the hands of the public for a time, anywhere from several months to several years, it is ready for collection. In money circulation, the most common reason for collection is the mutilation of bills and coins. Banks collect currency featuring rips, tears and graffiti and return the money to the federal bank. This also happens when banks discover or suspect certain currency is counterfeit.

Destruction of unusable currency is the final step in money circulation. This older money is replaced by newer currency and is deemed worthless. Bills are shredded by machines designed to handle large quantities of bills and sent to a landfill, in most cases. As with each bill created, each destroyed bill is closely monitored in order to have an accurate understanding of a country's currency standings.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Patrick Wensink
By Patrick Wensink
Patrick Wensink, a bestselling novelist and nonfiction writer, captivates readers with his engaging style across various genres and platforms. His work has been featured in major publications, including attention from The New Yorker. With a background in communication management, Wensink brings a unique perspective to his writing, crafting compelling narratives that resonate with audiences.

Related Articles

Discussion Comments
By kentuckycat — On Jan 30, 2012

@titans62 - It sounds like you at least know the basics. I am not an economist by any means, I just remember talking about it in my economics class for a brief time last year. Basically, the M1 money supply is the most liquid of assets. It includes things like cash and traveler's checks and things that can be spent immediately.

The M2 money supply is a little bit more locked up. It takes everything from the M1 category and adds on things like savings accounts. There is also an M3 category, but I don't remember exactly what it includes. Maybe things like housing assets that usually take a long time to become liquid.

We were talking about it in the context of the Greek economic crisis, so it can be applied to other systems outside of the United States. I guess when economists and federal regulators are deciding what decisions to make, they look at the numbers. I know in the US, the Fed publishes the numbers every week or so. That way people can see changes in saving and spending habits by Americans.

By titans62 — On Jan 29, 2012

@JimmyT - I never did quite understand why people didn't use $2 bills. A lot of people even think that somehow they are worth, or will be worth, more than two dollars someday, which seems crazy to me.

Is anyone here familiar with the different money circulation schemes? I had never heard about it until recently, but can't really find a lot of information about it. Basically, money can be divided into a bunch of different categories that all start with M followed by a number. Somehow the different numbers signify the liquidity of the money and how it is being spent.

Since I can't really find any good explanation of it, I am wondering if it is only an American thing or if it is a general economic principle that can be applied to the amount of money in circulation in any country.

By JimmyT — On Jan 29, 2012

@jmc88 - If you have ever heard of the Chairman of the Fed, that is the person who is in charge of the Federal Reserve Bank. Alan Greenspan was in charge of the Fed from the end of Ronald Reagan's presidency up through 2006. Ben Bernanke took over from there. The Chairman's name gets thrown around a lot, but a lot of people don't really know what he does.

Basically, like you asked, he is in charge of deciding how much money should be in circulation and where it should be going. Another very important job is deciding what the various interest rates should be for the federal government. He works closely with the Secretary of the Treasury whose responsibility it is to advise the president about economic matters and, of course, run the Treasury.

As far as deciding what types of currency get printed, I think that is mostly just based on what is being circulated. Obviously, there need to be more 1s than 100s, but fewer $2 bills than either. In fact, $2 bills get circulated so little that there have only been two printings since the 1970s.

By jmc88 — On Jan 28, 2012

I had a chance to visit the Federal Reserve Bank when I went to Washington last summer. It was a pretty interesting place to go, but they definitely keep a tight lock on what you get to see.

As far as how much money gets printed, who decides? Is there an actual person, or is it sort of just a formula with a bunch of different inputs? Also, how do they decide how much of the different types of currency need to be printed?

I know I was reading an article not long ago about the penny being worth less than the cost to make it. It seems like that is a pretty foolish way to go about the process, but what do I know? Also, is the Reserve Bank the only place that prints money or do all of the federal banks have the ability to print their own money?

Patrick Wensink
Patrick Wensink
Patrick Wensink, a bestselling novelist and nonfiction writer, captivates readers with his engaging style across various...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.