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Trust and Acceptance: Public and Private Money

How Money Comes Into Being

The sole responsibility for issuing euro banknotes and coins lies with central banks such as the Oesterreichische Nationalbank (OeNB). In Austria, OeNB supervises the issue of banknotes, while Münze Österreich AG, a subsidiary of OeNB, is responsible for minting coins. In addition, central banks implement monetary policy in accordance with the guidelines of the European Central Bank and cooperate closely with commercial banks that hold accounts with them. The combination of the balances of commercial banks' accounts held with central banks and physical cash are ‘central bank money’ and is only created by the central bank.

Oesterreichische Nationalbank

Public Versus Private Money

Public money and private money are two different types of currency, with public money being backed by the State and universally accepted, while private money is issued by private companies and relies on trust in such companies. Public and private money differ in their origin, status and use:

Public money is issued and guaranteed by state or public institutions. It is the official legal tender of a country and is managed by the country’s central bank. The cash in our wallets is central bank money. At present, banknotes and coins are essentially the only types of central bank money available to the general public. Central bank money is also referred to as public money, as it is issued by a public institution, the central bank, and is therefore guaranteed by the public sector. Private money is issued by private institutions, usually commercial banks. It is money that is created by private companies and is not guaranteed by state institutions. Credit cards, cheques and other means of payment issued by private banks are examples of private money. Commercial banks also contribute to the creation of money, for example, when they grant a loan and the corresponding amount is credited to an account. This form of money is known as private money. This also includes the credit balances and savings shown on bank statements. Nowadays, payments made with debit or credit cards or via online payment services are always private money, as the money created by the bank is used.

Guarantee and security
As public money is issued and guaranteed by government institutions and central banks and recognised as legal tender, it offers a high level of security and stability, so people have confidence in it. As private money does not have the same government guarantee and security as public money, trust in private money depends on the reputation of the private institutions that issue it.

Public money is primarily used for everyday trade and transactions and serves as a universally accepted means of payment and a reserve currency. Private money can take various forms and is often used for electronic transactions, credit card payments and other non-cash payment methods. It often complements public money but is not usually considered an official currency.

In essence, public money is backed and guaranteed by state institutions, offers a high level of security and is used as an official means of payment. Private money is issued by private companies, is based on trust and is often used for electronic transactions and complements public money. Both types of money ultimately play an important role in the modern economy and financial system.