Money is what we buy things with. You exchange money for goods and services. When most people speak of money, they are talking about paper money and coins. This is called currency.

In the United States, currency consists of coins and bills. There are six types of coins: pennies (one cent) , nickels (five cents), dimes (10 cents), quarters (25 cents), half-dollars (50 cents), and dollars (100 cents). There are seven denominations of bills: one dollar, two dollars, five dollars, 10 dollars, 20 dollars, 50 dollars and 100 dollars.

The government stopped making the $500, $1,000, $5,000, and $10,000 bills in 1946.

The Federal Reserve System controls the amount of money in the United States. The Federal Reserve System consists of a Board of Governors based in Washington D.C. and 12 regional banks. The banks are in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. President Woodrow Wilson created the Federal Reserve in 1913.

The U.S. Mint makes all the coins that are circulated in the United States. Paper money is made at the U.S. Bureau of Engraving and Printing in Washington, D.C. The facilities that make coins are located in Denver and Philadelphia.

U.S. currency is printed by the engraved intaglio steel plate method, a procedure that gives the money an embossed feel and other features that are hard to counterfeit. Pennies are made of zinc. Nickels are made of an alloy of copper and nickel. The other coins are made from the same alloy as nickels and a core of copper.

Inflation and the value of a dollar

You may have heard your parents or grandparents say that a dollar used to buy more than it does today. For example, a soft drink that costs $1 now may have cost 50 cents when your parents were younger. This is called inflation. Inflation is an increase in the level of prices, or a decrease in the value of a dollar. The U.S. Department of Labor measures inflation by something called the Consumer Price Index.

The Department of Labor developed the Consumer Price Index by surveying people to determine about 400 common items that they all typically buy. This imaginary collection of items is called the market basket. The Consumer Price Index is based on the amount everyone would have to pay to buy everything in the market basket. The change in the price of the market basket is expressed as a percent. The percent is the rate of inflation (if the cost goes up) or deflation (if the cost goes down.)

Money in other countries

The Euro

In the United States, the unit of currency is the dollar. Of course, virtually all other countries have monetary systems and their own currencies. For example, Italy uses the lira and France uses the franc. A recent major development in the world is the creation of the Euro, which is a currency that is shared by 11 European nations.

Since January 1, 1999, the Euro has co-existed with the 11 national currencies in the countries where it is in use. The 11 countries and their currencies are the Austrian schilling, Belgian franc, Dutch guilder, Finnish markka, French franc, German mark, Irish punt, Italian lira, Luxembourg franc, Portuguese escudo, and Spanish peseta.

Although there is behind-the scenes banking that is being conducted with the Euro today, the currency won't be fully circulated until January 1, 2002. That means you won't use it to buy items off the street or in shops until that date. The Euro was created to ease financial relationships among European nations themselves and with the rest of the world. Some economists warn that if the Euro runs into trouble it could create more widespread problems than if an individual country had a problem with its currency.

The Exchange Rate

Different countries have different currencies. If you travel to another country, you will probably exchange your U.S. money for the money that is used in that country. In some countries - all things considered - the equivalent of the U.S. dollar will buy less than it does at home; in other countries, it will buy more. The rate at which one country's currency can be converted to another is called the exchange rate. The U.S. exchange rate is based on the dollar.

Here are the names of basic currencies in other parts of the world:

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