Demand Deposits, Currency, and Quasi Money: A Comprehensive Explanation for Beginners

Bittime -  In everyday life, money functions as a means of payment used in various economic transactions. It takes various forms and is categorized into several types, namely demand deposits, currency and quasi money. Understanding the differences between the three is very important, especially for those who want to understand the financial system better.

Understanding Currency Money

According to Bank Indonesia, currency is money that is held and used directly by the public in their daily activities. Currency consists of banknotes and coins issued by the government or central bank. Its main function is as a legal means of payment in buying and selling goods and services.

Currency is also used by financial institutions as part of their cash reserves. Its liquid nature makes it the most commonly used form of money in the economy.

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Understanding Giral Money

Demand deposits are a type of money that is not in physical form, but is in the form of an account issued by a commercial bank. Examples are savings balances, checks and giro bills. Even though it cannot be used directly like currency, demand deposits still have value as a means of payment through the banking system.

Commercial banks have an important role in creating demand deposits, but they do not have the authority to issue banknotes or coins like central banks. Transactions using demand deposits are generally carried out on a large scale, such as business payments or interbank transactions.

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Understanding Quasi Money

Different from currency and demand deposits, quasi money or almost money is a financial asset that is less liquid and cannot be used directly for daily transactions. Examples are bank savings, time deposits, and domestic private foreign exchange accounts.

Quasi money still has value as a means of payment, but its disbursement requires time or certain conditions. Therefore, quasi money is often used as a form of investment or long-term savings.

Conclusion

Money in the modern economic system is not only limited to physical money circulating in society, but also includes other forms such as demand deposits and quasi money. All three have their respective roles in maintaining the balance of the financial system and facilitating transactions in various sectors.

FAQ 

1. What is the main difference between currency and demand deposits?

Currency is in physical form (paper and metal) and can be used directly in transactions, while demand deposits are in the form of account balances that are used through banking.

2. Do deposits include demand deposits?

No. Deposits are included in the quasi money category because they cannot be used directly as a means of payment without going through a disbursement process first.

3. Why is quasi money considered less liquid?

Because its use is bound by time or certain conditions, such as deposit disbursement which can only be done after maturity or with a penalty if it is disbursed early.

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Reference

Investor ID, Let's understand... What is demand deposits, currency and quasi money, accessed March 11, 2025.

Author:MF