Money Money Conceptually money can be defined as

Money

Money • • “Conceptually money can be defined as any commodity that is generally accepted as a medium of exchange and a measure of value” The Conventional approach The Chicago approach The Gurely-Shaw approach The Central Bank approach

The Kinds of Money • • • Commodity money Metallic money Paper money Bank money Plastic money Invisible money

The Functions of Money • • Money as a medium of exchange Money as a measure of value Money as a store of value Money as a standard of deferred payments

Significance of Money • Money eliminates the problems of the barter system • Money works a factor of production • Money accelerate the pace of production and growth • Money is life blood of modern economy • Money contributes in many other ways – consumer choice, money market, efficient allocation of resources

The Source of Money Supply • The central bank and high power money • Commercial bank and money creation • Non banking financial intermediaries and money supply

Measure of money supply in India • M 1 = C + DD + OD • M 2 = M 1 + Savings deposits with post office • M 3 = M 1 + Net time deposits with commercial banks • M 4 = M 3 + Total deposits with post office (including NSC)

Money Multiplier • The money multiplier is the amount of money that banks generate with each dollar of reserves. Reserves is the amount of deposits that the Reserve Bank requires banks to hold and not lend.

Credit Creation Process

Monetary Policy

Monetary Policy • Monetary policy is essentially a program of action undertaken by the monetary authorities, generally the central bank to control and regulate the supply of money with the public and the flow of credit with a view to achieving predetermined macroeconomic goals

Instruments of Monetary Policy Quantitative Measures • Open Market Operations • Bank rate/discount rate • CRR • SLR Qualitative or Selective Credit Controls • Credit rationing • Change in lending margins • Moral suasion • Direct control

Limitations of Monetary Policy • • The time lag – Inside lag and outside lag Problem of forecasting Non baking financial intermediaries Underdeveloped money and capital market

• • • Policy Repo Rate: 6. 75% Reverse Repo Rate: 5. 75% Marginal Standing Facility Rate: 7. 75% Bank Rate: 7. 75% CRR: 4% SLR: 21. 5%

• Four printing presses print and supply banknotes. These are at Dewas in Madhya Pradesh, Nasik in Maharashtra, Mysore in Karnataka, and Salboni in West Bengal. • Coins are minted by the Government of India. The Reserve Bank is the agent of the Government for distribution, issue and handling of coins. Four mints are in operation: Mumbai in Maharashtra, Noida in Uttar Pradesh, Kolkata, and Hyderabad.

Statement 1: Reserve Money (` billion) ITEM 1 Reserve Money Components (i+ii+iii) i) Currency in Circulation ii) Bankers' Deposits with RBI iii)`Other' Deposits with RBI Year-on-year 2014 2015 Amount % 10 11 12 13 2088. 5 13. 3 1535. 5 8. 6 1502. 1 12. 2 1442. 5 10. 4 556. 5 18. 6 0. 5 29. 9 71. 1 74. 3 103. 2