Money works because people trust it holds value and will be accepted by others. In the UK, that trust runs through both physical cash and digital bank deposits.
Last reviewed: 1 July 2026
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MONEY GUIDES |
Money is anything widely accepted as payment for goods, services, or debts. What actually functions as money has changed over time, from shells and metal coins to today's mix of physical cash and digital bank deposits.
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KEY FACTS
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The three functions money has to serve
For something to function as money, it generally needs to work as a medium of exchange, allowing people to trade without bartering directly; a store of value, holding its worth over time; and a unit of account, giving a common way to price and compare things.
The three functions of money
| Function | What It Means | Example |
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| Medium of exchange | Accepted in trade for goods and services | Paying with a debit card |
| Store of value | Holds worth over time so it can be saved | Money sitting in a savings account |
| Unit of account | A common way to price and compare things | Prices listed in pounds and pence |
Cash is now a small part of the total money in circulation
Most money used in the UK economy today exists as entries in bank computer systems, created when banks make loans, rather than as physical banknotes and coins. Physical cash remains legal tender and widely used, but it represents a shrinking share of the total money in the system as digital payments grow.
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Worked Example: Why trust is the real foundation A £20 note has no real intrinsic value as paper. It works as money only because everyone involved trusts that the next person will accept it in exchange for something else of roughly equal value. The same logic applies to the number showing in a bank app: it works as money because the banking system and its regulation give people confidence it represents something real and spendable. |
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This article is general information, not financial or legal advice. Rules and limits can change: always check the current position with the regulator or scheme concerned before relying on any figure here. |
Is money in my bank account the same as cash?
Functionally, yes, for most everyday purposes, but technically a bank deposit is a claim on the bank, not physical cash itself. This distinction matters most if a bank were to fail, which is where deposit protection schemes come in.
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Related Guides |
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