Cash

The term cash primarily denotes sovereign money in the form banknotes and coins. It may also refer to currency equivalents – such as checks, precious metals, bonds or vouchers – if these can be exchanged directly for good and services or sovereign money. The term is often used in a broader sense to refer to money in general (including book money) which makes up a person or entity’s assets as opposed to debt in the form of credit.

In its narrow sense, the term cash specifically denotes banknotes and coins which are legal tender for the settlement of debt. Together with reserves held by central banks on behalf of commercial banks, coins and banknotes make up a currency’s monetary base. Collectively these are known as base money.

Banknotes and coins represent the portion of base money which is circulated among a currency’s users and differ from book money in that they are legal tender with a guaranteed value in themselves rather than a promise of repayment of debt by a bank or other financial services provider.

As opposed to book money, the transaction of which requires trust in a third party service provider, cash in the form of banknotes and coins can be transacted directly between two parties without the need for third-party service providers.

Book money such as deposits held in a bank account or loaded onto a prepaid card is simply a debt agreement between the depositor as the lender and the financial services provider as the borrower, and repayment of the loan is dependent on the creditworthiness of the financial services provider and possible depositor protection guarantees (such as the scheme managed by Esisuisse). Book money is not legal tender for the settlement of debt.

In Switzerland, cash in the form of Swiss franc banknotes and coins is legal tender for both debt to the federal, cantonal and municipal governments and for all commercial transactions. In addition to Swiss francs, a number of cash-based alternative currencies are also used in Switzerland.

More on this topic:
Swiss National Bank
Swissmint

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