Comprehension:

Money and Banking

Exchange of commodities without the mediation of money is called barter exchange. It requires double coincidence of wants. Money facilitates exchanges by acting as a commonly acceptable medium of exchange. In a modern economy, people hold money broadly for two motives – transactive motive and speculative motive. Supply of money, on the other hand, consists of currency notes and coins, demand and time deposits held by commercial banks, etc. It is classified as narrow and broad money according to the decreasing order of liquidity. In India, the supply of money is regulated by the Reserve Bank of India (RBI) which acts as the monetary authority of the country. The commercial banks of the country and RBI are responsible for changes in the supply of money in the economy. RBI regulates money supply by controlling the stock of high powered money, the rate and reserve requirements of the commercial banks.