The definitive money in the nation that consists of all the base money in private hands comes from the monetary base created by the Fed. Besides this money is also held by government and foreign central banks but this is not included in the Federal Reserve notes. Commercial banks are also an important player in the economics of money banking and financial market. Their main function is however bilateral. On one hand they lend out in the form of a deposit to the borrower which he can withdraw according to his wish. This money however is not counted as base money but is a form of base money on demand. On the other hand they accept cash deposits which is converted into credit when the bank lends it out in the market.
A bank however can't lend out all the money it accepts as deposits as banks have to store away a portion of the money. These official reserve are in the form of vault cash and deposits at the Fed. Banks can also hold secondary reserve in the form of Treasury Bills. A bank complying with all the conditions laid down by the Fed may still be insolvent if its liability exceeds its other assets and reserves.
So far so good, the quantity of money in circulation is ultimately decided by the public. The central bank just replenishes the lost reserves. The liquidity of the banking system is in jeopardy if the attempts made by the central bank fails. There is a monetary crisis and a deflationary situation is created. The interest rate adjustment then comes into play to correct the situation.

At first sight the answer to this question seems obvious the man or woman in the street would agree on coins and banknotes, but would they accept them from any country? What about cheques? They would probably be less willing to accept them than their own country's coins and notes but bank money actually accounts for by far the greatest proportion by value of the total supply of money. credit cards and gold? The gold standard belongs to history but even today in many rich people in different parts of the world would rather keep some of their wealth in the form of gold than in official, inflation prone currencies. The attractiveness of gold, from an aesthetic point of view, and its resistance to corrosion are two of the properties which led to its use for monetary transactions for thousands of years. In complete contrast, a form of money with virtually no tangible properties whatsoever electronic money - seems set to gain rapidly in popularity.

The use of primitive forms of money in the Third World and North America is more recent and better documented than in Europe and its study sheds light on the probable origins of modern money. Among the topics treated are the use of wampum and the custom of the potlatch or competitive gift exchange in North America, disc-shaped stones in Yap, cowrie shells over much of Africa and Asia, cattle, manillas and whales teeth.Manillas were ornamental metallic objects worn as jewelry in west Africa and used as money as recently as 1949. They were an ostentatious form of ornamentation, their value in that role being a prime reason for their acceptability as money. Wampum's use as money in north America undoubtedly came about as an extension of its desirability for ornamentation. Precious metals have had ornamental uses throughout history and that could be one reason why they were adopted for use as money in many ancient societies and civilizations.

The invention of banking preceded that of coinage. Banking originated in Ancient Mesopotamia where the royal palaces and temples provided secure places for the safe-keeping of grain and other commodities. Receipts came to be used for transfers not only to the original depositors but also to third parties. Eventually private houses in Mesopotamia also got involved in these banking operations and laws regulating them were included in the code of Hammurabi.In Egypt too the centralization of harvests in state warehouses also led to the development of a system of banking. Written orders for the withdrawal of separate lots of grain by owners whose crops had been deposited there for safety and convenience, or which had been compulsorily deposited to the credit of the king, soon became used as a more general method of payment of debts to other persons including tax gatherers, priests and traders. Even after the introduction of coinage these Egyptian grain banks served to reduce the need for precious metals which tended to be reserved for foreign purchases, particularly in connection with military activities.
Money changing was not the only form of banking. One of the most important services was bottomry or lending to finance the carriage of freight by ships. In addition to his banking business he owned the largest shield factory in Greece and also conducted a hiring business lending domestic articles such as clothes, blankets. for a lucrative fee. When Egypt fell under the rule of a Greek dynasty, the Ptolemies the old system of warehouse banking reached a new level of sophistication. The numerous scattered government granaries were transformed into a network of grain banks with what amounted to a central bank in Alexandria where the main accounts from all the state granary banks were recorded. This banking network functioned as a giro system in which payments were effected by transfer from one account to another without money passing. As double entry booking had not been invented credit transfers were recorded by varying the case endings of the names involved, credit entries being in the genitive or possessive case and debit entries in the dative case.