The functions of money 1. Commodity money falls victim to Gresham's law which states that bad money drives out good money. Eventually people will no longer accept the commodity money because its intrinsic value has decreased too much.
Fiat money has little, if any, intrinsic value.
Banks can use the remainder of deposits, called excess reserves , to earn money by loaning them out or using them to purchase financial assets, primarily government bonds. The process of money creation 1. The process of deposit expansion and money multiplier 2. The thrust of the money multiplier is that when reserves are changed by some amount, the money supply changes by some multiple of the initial change in reserves. This has important implications for monetary policy.