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A Short Note on Money and Banks
Money can be defined as anything that is widely accepted as a medium of exchange. At present, three forms of money are in use. Firstly, Commodity money is good; whose inherent value serves as the value of money, for example, gold and silver. Secondly, fiat money which is the currency notes and coins issued by the Central Bank of a country. And thirdly, there is bank money consisting of accounting credits that the depositors can draw.
In most countries, the money supply is regulated by the Central Bank. Apart from setting the price of money, Central Bank also controls the entire banking system in a nation.
Banks perform the task of buying and selling money. βBuyingβ money implies accepting deposits from the general public who deposit the money to earn interests as well as for keeping the fund safe. βSellingβ money implies making use of this deposited money to extend loans to individuals and organizations in return for an interest.
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