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.
