Economic systems require a unit to represent value for exchanging valuables between different economic participants. As opposed to bartering regimes, wherein different participants combine various goods and commodities to exchange for other goods and commodities, monetary regimes provide a uniform unit of value for transactions. These units expedite the process of negotiations and purchases within a single system. However, a central authority in which the different players in an economic system have faith must produce this money and provide assurances of its value and acceptance.
Banks serve an important function in distributing money to individuals who can make the best use of it. For example, they may make a large purchase from industries such as home builders or automakers, or they may lend money to an entrepreneur who wants to start a new business. New businesses mean more job opportunities for workers, new customers for the companies that produce the materials the new business needs and general economic growth. Banks act as a central repository where individuals can store money and earn interest, and this money in turn goes to individuals who will help grow the economy.
Different economic systems in the global economic system use different monetary units. To do business with a company from one economic system that uses a particular currency, an economic actor will need the currency the company uses. These monies have different values depending on how many actors want to buy goods from that particular economic system. The value of one currency relative to another, known as the "exchange rate," effectively sets the price to trade one currency for another. To do international business, companies must exchange large amounts of money on a regular basis.
The authority that controls a given currency determines how many units of that currency will be in circulation at any given point. By increasing or decreasing the amount of money in circulation, that central authority can increase or decrease the value of the currency it regulates. Authorities can decrease the amount of money in circulation by selling government bonds, which puts that money in the central treasury instead of circulation, and increase the amount of money in circulation by purchasing government bonds, which puts stored money back in circulation.