Definitions [7]
- Prof. Crowther: "Money is anything that is generally acceptable as a means of exchange and at the same time acts as a measure and store of value."
- Prof. Walker: "Money is what money does" (Shows money is defined by its functions).
- Robertson: "Anything widely accepted in payment for goods" (Focuses on exchange function).
- “Anything which is commonly used and generally accepted as a medium of exchange or as a standard of value.” — Dr. Kent
"Money is anything which has the legal power to act as a medium of exchange and to discharge debt."
Under this definition, only items backed by government authority — currency notes and coins — qualify as money. In the words of Robertson: "Money is anything which is widely accepted in payment for goods or in discharge of other kinds of business obligations."
Gowther defines money as, "Money is anything that is generally acceptable as a means of exchange and at the same time, acts as a measure and as a store of value".
"Money is a matter of four functions — A Medium, a Measure, a Standard, and a Store."
Define the following concept.
Open Market Operation
Open market operations refer to the sale and purchase of government and other approved securities by central bank in the money and capital markets.
Open Market Operations (OMOs) are employed by Central Banks, such as the RBI, to control the money supply. Buying and selling government bonds on the open market changes liquidity, interest rates, and the economy. Central Bank purchases of securities increase market liquidity and lower interest rates. Selling assets reduces market liquidity and raises interest rates.
- "A bank which constitutes the apex of the monetary and banking structure of the country." — De Kock
- "A central bank is "The bank in any country is one which has been entrusted the duty of regulating the volume of currency and credit in that country." — Bank for International Settlements
- “A bank collects money from those who have it to spare or who are saving it out of their incomes and it lends this money to those who require it.” — Crowther
- “Bank means accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft or otherwise.” — According to Indian Companies Act, 1949
- Banking Regulation Act of 1949: “Banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, demand draft, order or otherwise.”
- Prof. Cairncross: “A bank is a financial intermediary, a dealer in loans and debts.”
Key Points
- Money eliminates barter system problems by providing a common medium of exchange.
- Three main functions: medium of exchange, measure of value, store of value.
- Must be generally acceptable to function as money.
- Modern economy completely depends on money for smooth transactions.
- Digital payments are the newest evolution in money's history.
- Medium of Exchange & Measure of Value: Money is used to buy and sell goods and services and to express prices, income, and expenditure in a common unit.
- Standard of Deferred Payments & Store of Value: Money makes future payments (loans, wages) easy and allows saving for future needs.
- Transfer of Value & Liquidity: Money helps transfer value across persons and places and is the most liquid form of wealth.
- Basis of Credit & Economic Measurement: Money forms the base of bank credit and helps measure national income and other macroeconomic variables.
- The central bank is the highest authority in the banking system. It controls, regulates and supervises all banks and manages the country’s monetary system.
- It formulates and implements monetary policy to control inflation, deflation, and overall credit in the economy.
- It acts as a banker, adviser and agent to the government, and also works as a “banker’s bank” by guiding and supporting commercial banks.
- The central bank has the sole authority to issue currency (except small coins/notes in some cases), ensuring a uniform and reliable money supply.
- It supports economic growth by promoting banking, developing financial institutions, managing foreign exchange, and helping priority sectors.
- The Central Bank controls currency and credit to maintain monetary stability.
- It regulates money supply through quantitative and qualitative credit control measures.
- Credit control helps in achieving price stability, economic stability, and exchange rate stability.
- The ultimate aim is high employment and economic growth (in India, done by the RBI).
- Commercial banks are profit-seeking intermediaries connecting savers and borrowers.
- Their primary functions are accepting deposits and granting loans.
- India has 89 scheduled commercial banks divided into PSBs, RRBs, Private Banks, and Foreign Banks.
- Nationalisation in 1969 and 1980 expanded banking access to rural and priority sectors.
- SBI is India's largest bank — 25% market share, 45 crore customers, top 5 globally.
- RRBs serve rural India at lower interest rates and are the backbone of rural credit.
- Private and foreign banks drive technology, innovation, and competition in banking.
- Commercial banks are regulated by the Reserve Bank of India (RBI) and governed by the Banking Regulation Act, 1949.
