The Treasury is the sole supplier of money in the United States. Every time that a bank wishes to lend money to its account holders, it borrows funds from the federal agency and puts them at the disposal of customers. Yet, it’s important to note that this influx of money will add up to the money that’s already in the economy. In short, the currency supply chain starts with money entering banks from the U.S. Treasury, leaving banks to go through the economy via corporate and private borrowers, returning to banks in the form of deposits, and returning to the Treasury in the form of loan repayments and taxes.
The movements of money through the economy
To see how money concretely moves through the economy, one must look at a practical example. Imagine you need to borrow $100 from your bank to start your business. The bank will submit a request to the Treasury for the amount you requested and will give you the funds, provided that your loan application gets approved. Once the funds are in your hands, you launch your company and start generating sales’ revenues. As your business grows, you hire more personnel while making monthly payments towards the repayment of your debt. The amount borrowed will have created wealth for the economy, as it will have generated a lot more than the initial $100. Wealth will have been generated via:
- Business revenues
- Business acquisitions
- Wages paid
- Taxes paid
Although this example shows how money moves through the economy, the currency supply chain can be broken down even more.
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