• An asset is a resource with economic value that is usually owned by an economic entity and therefore recorded on the ‘assets’ side of the balance sheet. Assets are acquired and/or funded by corresponding liabilities. 

• An economic entity may own various types of assets, including current, fixed, financial and intangible assets. For this dashboard, we are primarily concerned with financial assets which include money instruments with varying degrees of moneyness.  

• The balance sheet is a concept from double-entry accounting which organises the assets (what is owned) and liabilities (what is owed) of an economic entity into a financial statement that, by convention, always needs to balance such that total assets equal total liabilities plus shareholder equity. If the assets are greater in value than the liabilities, the entity has positive equity and is solvent. If the liabilities exceed the assets, the entity has negative equity and is insolvent.

• The balance sheet enables you to analyse the capital structure of a company and understand how it funds itself (via the liabilities side) as well as how it subsequently employs those funds (via the assets side). It is important to understand that a balance sheet provides only a temporary snapshot of an entity’s financial position, i.e. does not give information on entities’ monetary flows.

• In a monetary system composed of various types of money instruments, base money refers to the ultimate settlement medium that sits at the top of the monetary hierarchy and is considered the form of money that is the safest and of highest-quality in times of crisis. 

• In systems based on commodity money, base money refers to a physical (or synthetic) commodity that forms the backbone of the monetary hierarchy (such as gold or silver). In today’s fiat money system, base money refers to public money issued by the central bank in the form of cash (physical coins and banknotes), bank reserves and CBDC (if available). 

• In official statistics of the money supply provided by central banks, base money is often referred to as M0. 

• Cash can have several meanings that frequently overlap and are occasionally contradictory. 

• For this dashboard, we use the term in the narrow sense of central bank issued money instruments that (i) have the quality of a ‘bearer asset’ (i.e. can be directly and anonymously held by the user, where possession equals ownership) and (ii) can be directly exchanged in a peer-to-peer (P2P) fashion with instant settlement. Also often referred to as currency, these P2P media of exchange enable the non-intermediated storage and transfer of money, as opposed to ‘registered assets’ which are dependent on intermediated control and deferred settlement. The most prominent examples of cash are physical coins and banknotes that have no transaction history. 

• In finance, cash may also in a broader sense refer to cash equivalents recorded on the balance sheet of financial institutions and large corporations for the management of liquidity. 

Cash equivalents is a technical accounting term used, generally by corporate treasurers and investment funds, to refer to short-term liquid money market instruments that are treated as money substitutes in specific financial markets. These can either be immediately spent in payment of a debt or for a good and service (high degree of moneyness), or readily converted at (close to) par value into spendable money. The term is mainly used in the context of institutional money markets and primarily encompasses a broad range of various forms of wholesale money. 

• Clearing is the process of centrally collecting outstanding debts (promised cash outflows – what is due) and credits (promised cash inflows – what becomes due) to set them off against each other where possible. This process of ‘netting’ (i.e. cancelling out corresponding debts and credits) significantly reduces the burden of final settlement since only the remaining ‘net’ balance will need to be settled – either by being carried forward (i.e. turned into a new credit–debt relationship) or by final payment with an agreed-upon settlement medium.  

• This process can be performed at an individual institutional level (e.g. a bank offsetting corresponding customer payments on its books) as well as a broader system level (e.g. a dedicated clearing house offsetting the net balances of its member institutions). 

• Commodity money refers to a monetary asset that, rather than being the liability of an issuing institution, is based on a physical or synthetic form of commodity that has an intrinsic value independent of its monetary function.  

• Precious metals such as gold and silver have been prominent instances of commodity money throughout the centuries thanks to their distinctive properties. 

• In commodity-based monetary systems, the supply of base money is limited to the available quantity of the underlying commodity. Unlike representative money or fiat money, the supply cannot be regulated at discretion but is subject to the demand and supply dynamics of the underlying commodity. While this imposes limits on money creation in order to prevent or reduce inflation (discipline element), it also impairs the ability of an economy to expand in boom periods because the money supply cannot keep up with the growing demand for money. 

• Credit is a broad term with various meanings that is central to understanding the concept of money and payments.  

• A credit generally refers to a financial asset that represents a claim on someone, for a specific amount due at a particular time. A credit gives the right to its owner, the creditor, to demand payment from the debtor – i.e. it is a promise to be paid. As a result, a credit is always related to a corresponding debt, which represents the liability of the debtor party for the same amount (i.e. a promise, or obligation, to pay). When a debt is repaid (either by being offset against a different credit of identical value, or by payment with a settlement medium), both the debt and the corresponding credit are extinguished.  

• Credit can be bilateral (between two entities) or multilateral (between multiple entities), and always involves a debt instrument (e.g. loan, overdraft, bill of exchange or debt certificate). Some forms of multilateral credit may circulate as money instruments, as long as they are (i) liquid (easily transferable) and (ii) issued by a creditworthy monetary institution that enjoys wide recognition and trust.  

• Creditworthiness is a measure of solvency of an economic entity, which depends on its ability to accumulate sufficient credits to set off against its outstanding debts when they are due. The creditworthiness of an entity determines to what extent it can fund itself – and at what price – with the issuance of debt as part of its liabilities. Only entities with pristine – the highest – creditworthiness can aspire to become monetary institutions whose liabilities have a sufficient degree of moneyness to circulate as money instruments. 

• Creditworthiness is effectively an opinion subject to the circumstances of the day and is quickly adapted to shifts in broader market sentiment. This is particularly important in the context of money instruments where trust and confidence play a critical role in determining their moneyness. When doubts about the creditworthiness of a particular monetary institution arise, its liabilities may cease to circulate as money instruments, thus losing their monetary character as they become mere credit again. This could have potentially disastrous repercussions for the wider monetary system as a general loss in confidence may trigger broader contagion across the banking and financial systems.  

Currency is a term with various meanings. For our purpose, it may refer to (i) the (generally sovereign) unit of account in which prices and debt contracts are denominated or (ii) a medium of exchange that has cash properties including non-intermediated storage (direct holding) and transfer (peer-to-peer settlement).  

• A debt represents an obligation of a debtor to pay a specific amount due a particular time. Colloquially referred to as an ‘IOU’ (I owe you), it is recorded on the liabilities side of the balance sheet. Since a debt constitutes a promise to pay, it is always related to a corresponding credit which represents the other side of the transaction. A debt can be extinguished, or discharged, when cancelled by a credit of equivalent value. 

• Debt takes a central role in the functioning of every society, whether implicit in the carrying out of primitive rituals or explicit in the form of legal institutions that govern debt relationships. This exceptional role can be traced back to the ancient law of debt (sanctity of debt) observed in all societies that allows one to ‘liberate oneself from debt’ through deliberate deeds.  

Deflation is a situation where the general price level, e.g. as measured by a composite index of the cost of living (consumer price index or CPI), is continuously falling. This means that the value of the monetary standard (unit of account) is increasing – one unit of money buys you more than before, resulting in greater purchasing power. This is good news for creditors who have lent money, but bad news for debtors.

Deposit insurance is a safety net component of the national currency system designed to protect depositors in insured institutions against losses. Insurance coverage is generally limited to bank deposits and capped at a threshold that varies between jurisdictions. The cap is sufficiently high to ensure the payment needs of the average household or small business (retail users) are met, but far too small to adequately cover institutional investors with large cash balances under management.  

Inflation is a situation where the general price level, e.g. as measured by a composite index of the cost of living (consumer price index or CPI), is continuously increasing. This means that the value of the monetary standard (unit of account) is falling – one unit of money buys you less than before (lower purchasing power). This is good news for debtors who can more easily repay their borrowings, but bad news for creditors whose loans are now worth less.

The intrinsic value of an asset is its inherent value beyond potential financial or monetary usage. For instance, gold as a physical commodity derives intrinsic value from ornamental and/or industrial use, which is independent of any monetary value that results form its use as a money instrument. A money instrument always has a par (or face, nominal) value equal to or higher than its intrinsic value, as otherwise holders would be incentivised to sell the underlying commodity for its higher intrinsic value. 

• A liability is a financial obligation that is owed by an economic entity and is therefore recorded on the ‘liabilities’ side of the balance sheet.  

• Monetary liabilities are liabilities of specific entities (monetary institutions) that circulate as money instruments. 

• Liquidity is a property that describes the ease with which financial assets – in this case money instruments – can be readily transferred, traded and exchanged at a price identical or close to their fair value. Liquid markets are dependent on market-making institutions who ensure that buyers and sellers can transact without friction.  

• Liquidity is a crucial property in all financial markets, but even more so in money markets where the moneyness of an asset largely depends on its liquidity.  

Generally considered one of the three main functions of money, along the unit of account and the store of value, the medium of exchange is what most people typically associate with money – namely the money instruments that are used day to day to pay in exchange for goods and services, or to extinguish an unrelated debt. In this context, we also refer to a medium of exchange as a settlement medium. 

Monetary credit conversion is the process of transforming illiquid and personal (bilateral) credit into liquid money instruments. This process is undertaken by monetary institutions such as banks who substitute their higher credit for someone else’s lesser credit, generally for a fee. 

• Monetary institutions are economic agents who issue liabilities that circulate as money within specific contexts and environments. They are effectively engaged in monetary credit conversion by substituting their own, more pristine credit for the lower credit of lesser-known economic agents (e.g. individuals and businesses). 

• Only entities with the highest degree of creditworthiness and broad economic reach can aspire to issue monetary liabilities that circulate as money. Prominent monetary institutions today include the central banks, commercial banks and e-money institutions. However, with technological advancements, barriers to becoming a monetary institution are crumbling as the cost of creating, distributing and exchanging marketable liabilities has fallen drastically; this has enabled the entrance of new entities with different business models. 

Monetisation is the process of assigning monetary value to previously traditional or social obligations, and so enabling the formation of markets with prices expressed in a single value unit (unit of account).  

For this dashboard, we use the term ‘money’ in two related ways: (i) as the high-level, overarching system of credit and money instruments that facilitates the operation of commerce (including, importantly, the prevalent unit of account in which prices and debt contracts are expressed); and (ii) as money instruments typically accepted within a specific economic area or environment for the final settlement (payment) of obligations (i.e. settlement media). 

Money instruments are assets that circulate as money – i.e. settlement media that are accepted by the public (general-purpose) or specific niche groups (limited-purpose) as payment for commercial transactions or unrelated debts. We differentiate money instruments from money market instruments which tend to be broader in scope (having a wider range of risks and durations) and more likely to trade under (discount) or over (premium) par value. To become a monetary instrument, an asset needs to be both liquid and issued by a creditworthy institution. Some limited-purpose money instruments may be considered quasi-money if their area of application is very narrow and contained (e.g. airline miles or supermarket points).  

Money market instruments are a broad range of financial assets with different durations and risk profiles that are traded on wholesale money markets for the purpose of institutional liquidity management. Examples include money market funds, reverse repos (repurchase agreements), commercial papers, certificates of deposit (CDs) and other short-term debt certificates. 

Since the distinction between a credit and a money instrument can be fluid and dependent on various factors (including your position within the monetary hierarchy), ‘moneyness’ has emerged as a term that attempts to capture the degree to which a given financial asset may also circulate as money, beyond its original function as a commodity or debt instrument. By definition, it is a property that is (i) subjective and encompasses a broad spectrum, and (ii) dynamic in that it changes with circumstances and market sentiment. 

• The national currency system is a multi-tier institutional monetary system in place across most nations today which is based on a public–private partnership between the State and select financial institutions. It establishes a regulated ‘perimeter’, largely protected by a safety net, where authorised monetary institutions (central bank, commercial banks, e-money institutions) issue a complementary mix of public (or sovereign) and private monies to facilitate commerce. 

• The system comprises a variety of legal and regulatory frameworks: we use the term regulated money to refer all forms of money that are explicitly authorised by the State and therefore benefit from some form of government-guaranteed insurance or protection. We refer to all other forms of money that are not formally included in these frameworks (i.e. outside the national currency system) as unregulated money. 

For this dashboard, we use the term ‘par value’ to refer to a situation where a money instrument can be redeemed at, or exchanged for, 100% of its face value, as opposed to where a cash equivalent may suddenly trade at a premium (i.e. higher price) or discount (i.e. lower price). Convertibility at par value is a crucial property for any asset to become a generally circulating money instrument.  

• With a price peg, the price of an asset is deliberately fixed relative to another ‘reference’ asset using a specific mechanism. As part of the arrangement, the asset may be convertible on demand for the underlying reference asset at a fixed price (par (or face, nominal) value in the case of money instruments).  

• For example, the value of the USD was pegged to gold at a price of $35 per ounce under the Bretton Woods system. Any holder of USD was theoretically entitled to present the banknotes to the Federal Reserve for redemption against gold. In practice, few did – which is a fitting demonstration of the power that promises hold.  

• Private money comprises forms of money issued by the private sector. As a direct liability of a private issuer, it features counterparty and credit risk: its value is entirely dependent on the solvency of the issuer. The degree of counterparty and credit risk can vary greatly and is dependent on the type of issuer, its creditworthiness, and broader macroeconomic and macro-financial conditions.  

• In times of crisis, trust and confidence in private money may quickly evaporate: previously liquid private obligations then become inert bilateral credit that does not circulate anymore as a money instrument, resulting in a flight to quality where demand for safer, more liquid forms of money skyrockets.  

• Public money comprises forms of money issued by the sovereign State or its affiliated agents (such as central banks). As a direct liability of the State, public money is free from counterparty risk: it is therefore often considered to be the ‘safest’ form of money, which sees rising demand during times of crisis. In today’s fiat money system, public money therefore sits at the top of the monetary pyramid. 

• Public money is available to retail as retail money in the form of cash (banknotes and coins), and as wholesale money used by financial institutions (mainly banks) in the form of central bank reserves. The latter serve as an ultimate settlement medium for interbank transactions.  

• Purchasing power is a general concept describing what money can buy, i.e. what you get in terms of goods and services in exchange for one unit of money. Purchasing power is generally measured by a composite price index designed to approximate the level of prices in the economy.

• The purchasing power of existing money holders increases when there is deflation (one unit of money buys more as prices are falling) and decreases when there is inflation (one unit of money buys less because prices are rising).  

• For this dashboard, we use the term ‘regulated money’ as money instruments that are explicitly authorised by the State to circulate as money. The national currency system is composed of various types of regulated money that, in most countries today, include central bank reserves, cash (banknotes and coins), bank deposits and e-money. 

• Regulated money is based on a legal foundation provided by State (explicit authorisation to issue private credit that circulates as money, thereby enjoying the trust and confidence of the State). 

• Issuers of private regulated money are licensed banks and e-money institutions that, in exchange for receiving the privilege of private money creation, are subject to a range of regulatory rules, including prudent capital and liquidity requirements and other safeguards. 

For this dashboard, we use ‘representation mechanism’ as an umbrella term to refer to the range of mechanisms and technologies that record and represent monetary obligations between economic agents. These can be physical or virtual, based on tokens or accounts, analogue or digital – in many cases they are a clever combination of several technologies. Coinage and double-entry bookkeeping may be considered the most successful representation mechanisms. 

Representative money is a type of monetary system in which the base money represents a claim on some underlying commodity at a fixed value (price peg). Generally, the money instrument may be redeemed for the underlying commodity, as under the Bretton Woods system when the US dollar was pegged to gold at a fixed price of $35 with convertibility on demand. This mechanism provides greater flexibility than a commodity money system because the supply can be managed to some degree (e.g. by adjusting the price ratio), but ultimately, it remains hostage to external factors impacting the reference commodity.  

Retail money comprises all forms of money that are available for use by the general public (i.e. consumers and households as well as small and medium businesses), as opposed to wholesale money which is accessed and used solely by financial institutions and large corporations operating within wholesale financial markets. 

Settlement refers to the process of extinguishing (repaying) a debt that has arisen from a commercial transaction. The obligation may be settled in real time in a peer-to-peer (P2P) fashion generally by use of a settlement medium (see Cash), or deferred so that the balance is carried forward through a new debt relationship. Settlement often takes place after an initial clearing process that reduces the net amount of the settlement medium that needs to be held.  

• A settlement medium refers to a money instrument which is widely accepted within a specific economic area or environment for extinguishing an unrelated debt.  

• What counts as a settlement medium depends on one’s position in the money hierarchy: for example, households and businesses consider cash, bank deposits and e-money as equal substitutes for settling transactions, whereas banks only consider public money – in this case central bank reserves, and potentially a form of wholesale central bank digital currency (CBDC) in the future, as an acceptable medium for settling interbank transactions. 

• A technology-agnostic umbrella term referring to an emerging set of network-based cryptographic systems, shared ledgers enable shared recordkeeping and computational operations between multiple independent actors. 

• Blockchains and distributed ledger technology (DLT) have played a pioneering role in setting up such systems, though shared ledgers may also be implemented with other technologies. 

Solvency is an accounting term related to the balance sheet that indicates the economic and financial condition of a company. A company is considered solvent when the total value of its assets (what it owns) is equal to or higher than the total value of its liabilities (what it owes) such that it has positive equity. In contrast, a company becomes insolvent when its total liabilities exceed its total assets: since it cannot repay all its outstanding debts with the assets it owns, it is effectively bankrupt and forced to close down.  

A store of value is an asset that maintains its value (for a monetary instrument, its the purchasing power) over a prolonged period of time. It is generally listed along with the unit of account and the means of exchange as one of money’s three functions, though sometimes considered less important than the others.   

• A token is a representation mechanism based on physical or virtual objects that point to something of value beyond themselves. The value of a token does not depend on the material of which it is composed, but on the nature and credibility of the promise made by the issuer, which it embodies.  

• A typical example of a non-monetary token would be a cloakroom token which serves as a receipt when depositing a coat, and which can be subsequently exchanged for the coat upon presentation. For monetary tokens, such as paper notes and cheap metal coins, the value of the token depends on the stature and creditworthiness of the issuer – in this case the sovereign State.  

• A unit of account is a standard of economic value that serves as a measuring stick (single reference) for goods and services, and more broadly, for assets and liabilities. It is the unit in which prices are expressed and debt contracts denominated.  

• Denoting the value of the credit or monetary unit, the unit of account is generally an arbitrary standard of value that, while often bearing the name of ancient measures of weight, has no link to these measures.  

• The unit of account is one of the three main functions of money, along with the means of exchange and the store of value. 

Wholesale money comprises a broad range of money market instruments that are mainly used by financial institutions and large corporations for the purpose of managing liquidity and funding in financial markets. Unlike retail money, wholesale money is generally not available to the general public (i.e. consumers, households and small businesses), and may thus be considered a more limited-purpose form of money.