6 Banking, Payments and Money

Subject(s):

Functions and status of money — European Central Bank

This chapter illustrates how state money only does a specific job, but the monetary jobs which need to be done across an economy generally require a wide variety of different types of instrument, and there is no reason why sovereign-issued money should seek to perform all of those functions. The central bank only acts as ‘paymaster’ to commercial banks and payment service providers, and those commercial banks and payment service providers act as paymasters to the rest of the economy. A paymaster is a person who provides payment services—someone who, when instructed, makes a payment to another on the basis that they either have or will recoup the value from that other. The chapter shows that the real economy rests on a foundation of money provided by the central bank.