2. Analysis of the present money system
2.1 Money in the two-tier banking system. Defining money. Money as currency
/17/ Today's monetary system rests upon a two-tier banking structure which comprises three groups of actors: (1) central bank, (2) banks, (3) nonbanks. Nonbanks are composed of (a) nonbank financial actors (e.g. funds, insurance companies), (b) real-economic businesses and companies, (c) government, and (d) private households. MMT may not fully endorse this setting because according to this theory, government or the state, respectively, is supposed to play a fiscal and monetary role at the same time. Treasuries and central banks are said to belong in one category dubbed 'government' (discussed in chapters 3 and 4).
In this place, one will agree that the central bank stands for the first tier of the banking system in any case. It carries the interbank circulation on the basis of reserves, i.e. central-bank money on operational accounts run at the central bank. Normally these are bank accounts, but as far as central banks continue to run government accounts, these are part of that circuit too. In most countries governments run accounts with the central bank as well as with private banks.
The second tier rests upon the banks and carries the public or nonbank circulation on the basis of demand deposits, i.e. non-cash bank money. To the extent that daily interbank clearings are not settled in reserves but taken on interbank mutual current accounts, these are also part of that circuit.
The two circuits are separate. Reserves and demand deposits cannot mingle. Nonetheless the two circuits are co-related—first, by clearing nonbank and interbank transactions, the net balance of which has at some final stage to be settled in reserves; second, by exchanging cash out of and back into non-cash circulation. Cash, at latest since the end of the metal age of money, is no longer constitutive for a modern money system. Today, money at source is digital money in the form of accounting data entered into current accounts, thus existing in the original and constitutive forms of non-cash central-bank reserves and bank demand deposits.
/18/ Money or currency, respectively, should not be confused with methods of payment such as cheques, credit and debit cards and other arrangements facilitating payment.
In the pyramid of monetary items, government coin (a small remainder, sold on demand to the central bank for reserves) and central-bank money (reserves and banknotes) are the 'high-powered' money base (M0). This is followed by demand deposits, or transaction deposits and any other immediately available type of deposit, i.e. liquid money on bank account (M1 in Europe, broad money M2 in the US). M0 is legal tender (lawful money) 'for all debts, public charges, taxes and dues'; liquid deposits in M1 (Europe) or M2 (USA) are not, not by law, in practise however, effectively yes. All other monetary items, such as e.g. money fund shares, non-instantly available savings and time deposits, secured items, do not normally serve as a means of payment. They represent 'near-money', i.e. short-term capital, and long-term capital such as commercial and bank papers, bills and bonds, stocks and other securities. Transfer of capital or of any other property in settling an important transaction does happen, but represents an exception to the rule.
Accordingly, money is what serves as a ubiquitous means of payment in general and regular circulation. As Lerner stated quite simply: 'Money is what we use to pay for things'. Furthermore, the term money is interchangeable with the term currency in the sense of current means of payment. The still prevalent understanding of 'currency' just includes cash on hand (coin and notes), and maybe also reserves. But following the above reality-based definition, currency as a matter of fact also includes bank money on account or on mobile storage media. Bank money in fact 'has gained currency' – so to speak, it is the major currency today.
/19/ Traditionally, bank money (demand deposits) is called a money surrogate. This is a normative and legal distinction which sets bank money apart from legal tender. The latter refers to money issued by a treasury or central bank and is rightly seen as a nation's legal base of sovereign money. One cannot deny, however, that bank money today constitutes the lion's share of money in general use – 80–97 per cent of liquid money depending on nation. One would rather have to question why and how the banking sector has come to enjoy the sovereign privilege of creating currency, thus holding itself a position of sovereignty. (More on this in 2.5–6 and 3.4–5).
In discussing money, credit and debt one must be careful not to talk past one another for purely semantic reasons. Terms involved have several denotations at once. Money, for example, is said to fulfil three functions:
a. as a unit of account. This determines the monetary standard of a nation-state or community of nation-states, e.g. dollar, euro, yuan etc., and its subdivisions, e.g. the dollar divided into ten cents, the yuan into ten jiǎo. This allows economic value or prices to be ascribed to things.
b. as a means of payment. This specifically refers to the monetary tokens used in payment of any debt, i.e. today, money on hand (coins and notes of varied denominations) as well as money on account (reserves in interbank circulation, demand deposits in public circulation).
c. as a storage of value. Traditionally this refers to money hoards such as the iconographic treasure chest, the piggybank or the bundle of banknotes under the mattress. In modern banking it refers to savings deposits and any other items in M2/M3, as well as all securities beyond. These are monetary assets.
It should be noted that a, b and c are not three functions of the same thing, but three different things. It would help to have a single term for each function. Common terms, though, are overlapping. 'Money' is used in any case. 'Currency' is used for a and b. As explained, currency must now also include money on bank account (demand deposits). 'Capital', short and long term, mainly refers to c but sometimes also includes b. As will be discussed in chapter 3, something similar applies to the meaning of 'credit' and 'debt'.
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 Mosler 1995 19, Huber 2013 17.
 In this context, the US 'trillion dollar-coin solution', discussed once again when coming close to the 'fiscal cliff' in December 2012, is highly interesting. With such a mega coin, the US treasury would redeem a corresponding amount of government debt held by the Federal Reserve. The mega coin option is unquestionably lawful according to Sec. 8 of the US Constitution, but would nevertheless be a significant rupture with today's banking practice of loaning, rather than spending money into existence.
 Lerner 1947 313.
 Wray 2012 xv.