Where does the Money Come from

"Where does the money come from?" Do you know? Do you think that central bank makes currency notes and supplies the money in the country? Or is there any other source of money from where money comes in the market? We will try to solve all these financial questions in this content.

Before reading this content, learn

What is Money? - Learn at here.

What are the features of money? - Learn at here

Now, come on the main topic " Where does the money come from?" You can say that money comes from central bank who makes currency notes and supply the money. But, I will say you are wrong. Actually money can come and go without currency notes. Suppose, you need $ 10,000 money, you get it from from ABC bank and issued check to Mr. B and Mr. B sends it to his creditor. So, money's flow is very much easy without any physical currency. Central bank is just make notes but it also works for country's govt. So, it will create new notes if Govt. needs to pay. For the person who wants to get money from Govt., central bank will not the supplier. It means, we have to understand the cycle of money's supply and demand.  

1. Money Comes from Bank  to Businessman

Suppose A bank gives 10 Billion $ loan to B  Businessman @ 10% interest. Now, we can say money comes from bank to businessman.

2. Money Comes from Businessman to Employees and other his Associated Persons

Now, B businessman starts his business with 10 Billion $. He uses all the resources of production like land, laborers, capital and organisation. He pays them and expects return of 20% on his $ 10 billion investment. Now, we can say money comes from businessman to workers, employees and other his associated persons.

3. Money Comes from Consumers to Businessman

Now, all these are consumers who buy the products of businessman, they buy products for satisfying their wants. They supply money because they want to product. It means money comes from consumers to businessman.

4. Money Comes from Businessman to Bank 

Now, businessman returns his $ 10 billion loan + 10% return to A Bank. We can say, money comes from businessman to bank.

In this cycle, money revolves among banks, businessmen and customers. So, as student, you should understand this cycle of money and never run the back of money because we will see in following graphic presentation  that money has reverse movement. It means, the person who runs back of money, money will not come back. The person who does not run back of money and gives more important to his given service or salable product's quality, money will come to that person. 

{Now, want to know, " How banks make money?" Read this. }

Graphic Presentation of Money's Movement







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Accounting Education: Where does the Money Come from
Where does the Money Come from
Accounting Education
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