It will be better to let the experts explain it to you. Below is a link to a PDF file titled "Modern Money Mechanics", published by the Federal Reserve Bank of Chicago and provided for free:
If TH blocks the hyperlink just type TheMoneyMasters dot com into your address bar, all one word, no spaces, and replace "dot" with a period. When the page comes up you will see a dark bar across the page near the top and the words "Modern Money Mechanics" in the middle of the bar - click on that. When the next page comes up scroll down a couple of paragraphs to the bottom of the text and click on link there to download the PDF file. Save the file on your computer.