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What is money?

Learn about the difference between central bank money and private money.

What can you do with money?

Money is what people receive when they:

  • get paid their wages
  • receive financial support from the government
  • sell something online
  • get a gift from a friend.

Money makes it easy for people to buy and sell things.

Meet Jess

Jess' employer pays Jess money in the form of her wages. Jess saves and spends her money on food, power, rent, phone, gifts, donations and travel.
Jess' employer pays her wages. Jess saves and spends this money on food, power and rent.

There are different types of money

Money can take the form of banknotes and coins, but it can also exist in a bank account, like your savings account. 

Central bank money

Central bank money is government-backed and issued by us, the Reserve Bank of New Zealand. Cash is currently the only type of central bank money available to anyone. 

Private money

Money that is created by private firms, such as commercial banks is called private money. All private money is 'digital' or 'electronic' - you can only get it, spend it and store it if electronic devices are involved. If you have a bank account, the balance available to buy things is an example of private money.

Tier 1 - Digital money and physical money. Tier 2 - Privately issued digital money and central bank issued digital money.

The first tier of the money tree splits money into digital money (electronic or intangible money) or physical money. There is 1 form of physical money — cash (banknotes and coins). Only we have the right to issue cash in New Zealand.

The second tier shows that private digital money is issued by the private sector, like a bank. Central banks, like us can also issue digital money. Currently, we do not provide digital money that is available for all New Zealanders to use. If we did, this would be called central bank digital currency (CBDC) or Digital Cash.

Find out more about Digital Cash

Together, central bank money and private money make up all the money used in Aotearoa New Zealand

Jess uses both private money and central bank money to pay. Her account balance in bank XYZ is called private money. The cash in her wallet is central bank money.

Pete uses both private money (money in his bank account) and central bank money as cash in his wallet.

Paying with private money

To use private money you need a payment instrument. A debit card, a credit card, contactless technology (like PayPal or Apple Pay) and internet banking are all examples of payment instruments.

In Aotearoa New Zealand, private money is more popular than central bank money (cash).

How Jess makes payments

Jess' employer pays her wages into her bank account. She can use this money to:

  • pay with a credit or debit card
  • pay online
  • use a debit card to get cash from the ATM
Different ways of paying with private money - credit cards, debit cards, online, get cash from ATM