Money is something people use to buy things: sellers agree to take it in exchange for what they sell. Barter's double coincidence of wants means that a trade only works when both people have something the other wants, and money solved many of barter's problems. Money has to do three jobs: it is a medium of exchange, a store of value and a unit of account. A store of value means money can be kept and still be worth about the same later. A unit of account lets people measure and compare the value of goods and services, a ruler for measuring value, but it does not set that value: the costs of making a thing and people's desire for it do. To work well as money, an asset must keep a steady buying power over time.

Around 630 BCE, someone in Lydia stamped a piece of precious metal with a mark, which made people trust its weight and purity. Coin stamping gave no new value to the metal; it only let people trust the stamp instead of re-weighing and re-testing the lump each trade. Early Lydian coins held about 55 percent gold, less than natural electrum, which suggests the Lydians refined the metal and added silver. Experts call the early royal Lydian coins croesids after King Croesus, who ruled Lydia from about 561 to 546 BCE. The Lydian stater is considered by numismatic historians to be the first coin officially issued by a government, and the model for nearly all later coins. Early coinage may have started as a series of private acts, but it grew into a state monopoly as it gained public importance.

For a long time China's basic money was a bronze or copper coin with a hole in the middle for stringing, and by 1085 China's government made more than 6 billion coins a year, ten times what it made under the Tang dynasty. Large payments in China were counted in strings of coins, but the strings were too heavy to carry far. In Tang-dynasty China, merchants used flying money: a paper receipt for money left with local officials that could be redeemed somewhere else, so they did not have to carry heavy strings of coins. Paper money in China began when merchants traded receipts from deposit shops instead of carrying heavy strings of coins, and in the 1020s China's government took over the paper receipt system, making the world's first government-issued paper money. A European traveler described paper money in the Yuan dynasty of China and astonished the Western world.

The first paper money made in the American colonies was issued by Massachusetts in 1690, to pay for a military expedition. Colonial paper money in America was legal tender in many colonies, and by one estimate made up 50 to 75 percent of the money in circulation. Massachusetts expanded its paper money by 39 percent a year for ten years during a war, and New England's paper money grew at least 34-fold between 1703 and 1713. Inflation in colonial America was more complicated than too much money chasing too few goods, according to scholars. During the Revolutionary War the Continental Congress issued paper money that quickly lost its value, which gave rise to the phrase "not worth a Continental." During the Civil War, Congress let the Treasury issue Demand Notes in 1861 to pay for the war, and the term greenback was first used for those notes because of their green ink.

Before 1971 the U.S. had a gold standard: de facto since the 1830s and by law since 1900. The 1913 law that set up the Federal Reserve required it to hold gold worth 40 percent of the money it issued. In March 1933 the Federal Reserve Bank of New York could no longer swap currency for gold, and the president declared a national banking holiday. From 1958, when the Bretton Woods system became operational, U.S. dollars could be exchanged for gold at a fixed $35 an ounce, and in August 1971 the U.S. ended the dollar's convertibility to gold, which soon brought an end to the Bretton Woods system. In the UK the link between banknotes and gold, known as the Gold Standard, ended in 1931. In the past, banknotes could be swapped on demand for gold, but today they cannot.

The Federal Reserve is the central bank of the United States, created by Congress in 1913. The Federal Reserve System has a Board of Governors in Washington, D.C., and 12 Federal Reserve Banks around the country. The Fed has five key jobs: monetary policy, financial stability, supervising banks, safe payments and consumer protection. The Federal Reserve does not print money: the Bureau of Engraving and Printing prints it, and Reserve Banks give it to banks. As of November 2026, the Bank of England is the central bank of the United Kingdom, not a high street bank, and it keeps about 400,000 gold bars in its vaults for the UK and for other central banks. As of November 2026, it has served the public for more than 300 years and sets the economy's core interest rate, called Bank Rate.

Inflation is the increase in the prices of goods and services over time. It is a general rise in the overall price level, not a rise in the cost of one thing. A price index measures changes in the price of a group of goods and services, and inflation can be tracked with several price indexes, which differ in the products and the methods they use. Because inflation numbers can jump around month to month, policymakers look at the average over a few months to a year or more. Core inflation leaves out food and energy, whose prices can go up and down a lot, to show the trend more clearly. As of November 2026, the Federal Reserve's policymakers say an inflation rate of 2 percent per year over the longer run is most consistent with its goals.

In 2016 cash was about one-third of U.S. payments, and by 2025 it was 14 percent of payments, the third most-used way to pay, according to the 2025 survey of U.S. consumers. U.S. consumers made an average of 47 payments a month in 2025, and about six of them were cash. In the 2023 survey, for the first time in the Diary of Consumer Payment Choice, cash was not the most-used way to pay for small purchases of $25 or less. People also held more cash than before 2020, both as a store of value and as a backup way to pay. The Federal Reserve checks bills it receives with machines, and those in good condition circulate again while the rest are destroyed. A bill's lifespan depends on its size: higher bills like the $100 stay in circulation longer because they are held as a store of value and change hands less often. The Federal Reserve estimates in May 2025 that a $100 bill lasts 24.0 years, a $20 bill 11.1 years and a $5 bill 5.8 years.

Dollar bills are made of cotton and linen, not ordinary paper, and their paper has red and blue fibers in it, which help make bills harder to copy. The U.S. Secret Service was created in 1865 to stop counterfeit money, and a group of agencies, including the Federal Reserve, Treasury, BEP and Secret Service, watches counterfeiting threats and recommends redesigns. Currency is redesigned mainly to stay ahead of counterfeiters. The percentage of counterfeit notes in circulation remains small, but new counterfeiting techniques keep appearing. U.S. money today is fiat money, which is not tied to gold or any other asset, and people use it because they trust that governments and central banks will not wreck its purchasing power. Money works because people trust it: the money system is based on confidence.

Words to know

• monopoly: sole control
• numismatic: about coins
• convertibility: ability to swap
• inflation: rising prices
• fiat: unbacked money