Question

How and why do people issue their own money, and how do they come to be used in an economy?

Why don’t governments like private issues of money, or even foreign currency, being used in their countries, and try to monopolise the issue of domestic money?

Answer 1

1 - The people create their own money. This can be understood as , the total income that they earn , a part of that income is spent on consumption and the rest part is saved. This saved part is deposited into the bank accounts. The banks then use this to lend money and create the money supply. The depositors get the interest on the deposited money.

In earlier times , people used their own methods of transaction through barter system and used to create their own money in form of different items. Thus , people tend to issue their own money.

2 - The government itself beers the sole responsibility of printing the currency rather than giving this to the private individuals. This is because the private individuals will keep on printing the currency as per their requirements and to earn more and more. This will disrupt the whole system of the economy and thus create no value of money. Also , reserves are to be kept before the issue of currency which is outside the control of private individuals or entities. Hence the monopoly of the government as a currency issuer is right.