What does the term 'currency in circulation' refer to?

The term 'currency in circulation' specifically refers to the physical paper money and coins that are actively used and held by the public, which facilitates transactions in the economy. This is the cash that individuals and businesses use in everyday exchanges, contributing to the overall money supply.

In contrast, cash held by banks is not considered to be in circulation since it is not available for public use in transactions. Deposits held by the Central Bank represent reserves and do not reflect the currency that is accessible to the public for spending. Non-liquid assets, such as real estate or stocks, are not immediately convertible to cash and do not play a direct role in the medium of exchange in everyday transactions. Therefore, the definition of currency in circulation aligns perfectly with the paper and coin money that individuals hold and utilize for their purchases and payments.