Money and Banking: Meaning, Functions, Commercial Banks & Central Bank
Economics guide to money, functions of money, commercial banks, central banking and credit creation basics.
By AccounTantra Team
Meaning of Money
Money is generally accepted as a medium of exchange and also performs functions such as measuring value and storing purchasing power.
Functions of Money
The main functions are medium of exchange, measure of value, standard of deferred payments and store of value.
Commercial Banks
Commercial banks accept deposits, provide loans and advances, facilitate payments and offer financial services.
Central Bank
A central bank performs key monetary and banking functions. In India, the Reserve Bank of India performs central banking functions including monetary policy, regulation and supervision of banks and currency management.
Credit Creation
Commercial banks can create deposits through lending, subject to regulatory requirements and the operating conditions of the banking system.
Business Connection
Businesses use banking for collections, payments, working-capital finance, loans and transaction records, making banking closely connected with accounting and cash-flow management.
Exam Tip
Distinguish commercial banks, which serve customers and businesses, from the central bank, which performs system-wide monetary and regulatory functions.