It no longer is a medium of exchange but the equivalent to junk. If money is withdrawn from circulation, the reverse of inflation, or deflation, occurs. This most frequently happens when banks become nervous due to excessive outstanding loans or too many defaults are occurring on existing loans. If the banks' own checks bounce or no money is there to cover depositors' demands, a run on the banks may happen, forcing them into bankruptcy. Money is tight.
Loans are difficult to get and interest rates are high.
At this point many things begin to happen. People who have invested in inflation by buying a house, for instance, with the idea of quick resale and profit suddenly find that loans are not available to potential buyers. Companies dependent on loans to remain in business begin closing their doors. Businesses that had planned to expand defer those plans. And all businesses try to make their operations more efficient so they can cut their prices and hopefully stay afloat in a shrinking market.