Supply of Money

What is Supply of Money?

According to the modern economy, money incorporates cash and bank deposits. Relying upon what sort of bank deposits are being incorporated, there are many measures of money. These are founded and created by a structure including 2 types of establishments :

Central Bank

Central Bank is a significant establishment in the modern economy. Almost every nation has one central bank. India got its central bank in the year 1935. Its is the ‘Reserve Bank of India’ or RBI. Central bank has various significant operations. It supplies and issues the currency of the nation. It regulates money supply of the country through various methodologies, like bank rate, open market operations and differences in reserve ratios. It functions as a banker to the government. It is the custodian and guardian of the foreign exchange reserves of the economy. It also functions as a bank to the banking structure.

Commercial Banks

Commercial banks are the other sort of establishments which are a part of the money creating structure of the economy. In the following segment we will have a look at the commercial banking system in detail. They accept deposits from the public and lend out part of these funds to those who want to borrow. The rate of interest paid by the banks to the depositors is lesser than the rate levied from the borrowers. This difference between these 2 types of interest rates, is called as the ‘spread’ is the profit earmarked by the bank.

The above mentioned is the concept that is explained in detail about Supply of Money. To know more, stay tuned to BYJUS.