This document discusses several topics related to money, including: 1. It defines money supply and its determinants, and explains that money supply is composed of currency with the public and demand deposits with the public. 2. It lists factors that can increase money supply such as expansionary monetary policy through open market purchases or decreasing reserve requirements. 3. It discusses problems with implementing monetary policy in Bangladesh, including the existence of non-monetized sectors, excess non-banking financial institutions, and unorganized financial markets.

1. Money
Money supply and Its Determinants
Money supply refers to the total sum of money available to the public in the economy at a point of time.
That is money supply is a stock concept in sharp contrast to the national income which is a flow
representing the value of goods and services produced per unit of time, usually taken as a year.
In the term public are included households, firms, and institutional other than banks and governments.
According to the standard concept of money supply, it is composed of the following two elements:
1. Currency with the public
2. Demand deposits with the public.
Factors that lead to the increase in money supply in the economy:
Expansionary monetary policy refers to any policy initiative by a country’s central bank to raise (or
expand) its money supply. This can be accomplished with open market purchases of government
bonds, with a decrease in the reserve requirement, or with an announced decrease in the discount
rate. In most growing economies the money supply is expanded regularly to keep up with the
expansion of gross domestic product (GDP). In this dynamic context, expansionary monetary policy
can mean an increase in the rate of growth of the money supply, rather than a mere increase in
money.
Problems of successful implementation of monetary policy in Bangladesh
There Exist a Non-Monetized Sector –
In Bangladesh there is an existence of non-monetized economy in large extent people areas where many
of the transaction are of the barter type and not monetary type.
Excess Non-Banking Financial Institutions (NBFI) –
NBFIs do not come under the purview of a monetary policy and thus nullify the effect of a monetary
policy.
Existence of Unorganized Financial Markets –
In many developing countries the financial markets are in unorganized nature and in backward
conditions where people like money lenders, traders, and business actively take part in money lending,
but unfortunately they are not under the purview of a monetary policy and creates hurdle in the success
of a monetary policy.
Higher Liquidity Hinders Monetary Policy –
If the monetary policy increase the CRR or SLR, it does not deter commercial banks from credit creation,
so the existence of excess liquidity due to high deposit base is a hindrance in the way of successful
monetary policy.
Money Not Appearing In an Economy –
Rich people, traders, business and other people prefer to spend rather than to deposit money in the
bank. This money is used for buying precious metals like gold silver, ornaments, and land and in
speculation. That’s why money in not appearing in an economy.

2. Concepts of Money
Commodity Money
Money is a common thing used in exchange for purchasing goods and services. In ancient times, barter
system was mostly prevailed in the world. This system started creating difficulties in trade as barter
trade cannot be done between two individuals if one has need for something that another have but the
latter individual has no need of something that former is offering.
High Powered Money
High powered money or powerful money refers to that currency that has been issued by the
Government and Bangladesh Bank(BB). Some portion of this currency is kept along with the public while
rest is kept as funds in Bangladesh Bank.
Thus, we get the equation as:
H = C + R
Where H = High Powered Money
C = Currency with the public (Paper money + coins)
R = Government and bank deposits with BB
Standard Money
Standard money is that in which the value of goods as well as all other forms of money are measured.
Thus in Bangladesh all prices of goods are measured in terms of taka.
Token Money
The token money is that the metallic value of which is much less than the real or intrinsic worth of the
metal it contains. Taka and all other coins in Bangladesh are all token money
Intrinsic Value
When the object used as currency itself has some value, then its value is called intrinsic value of the
currency. For example, when gold was used as a currency, then the gold in itself had some value.
Face Value
The face value is the value of a coin, stamp or paper money, as printed on the coin, stamp or bill itself by
the issuing authority. The face value of coins, stamps, or bill is usually its legal value. However, their
market value need not bear any relationship to the face value. For example, some rare coins or stamps
may be traded at prices considerably above their face value.
Functions of money:
– Medium of exchange
 Barter is inefficient—double coincidence of wants

3.  Money allows people to trade their labor for money, then use the money to buy
goods and services in separate transactions
 Money thus permits people to trade with less cost in time and effort
 Money allows specialization, so people don’t have to produce their own food,
clothing, and shelter
– Unit of account
 Money is basic unit for measuring economic value
 Simplifies comparisons of prices, wages, and incomes
 The unit-of-account function is closely linked with the medium-of-exchange
function
 Countries with very high inflation may use a different unit of account, so
they don’t have to constantly change prices
– Store of value
 Money can be used to hold wealth
 Most people use money only as a store of value for a short period and for
small amounts, because it earns less interest than money in the bank
– Standard of deferred payment
 Money serves as a standard of deferred payment
 Deferred payments mean those payments which are to be made in the future
 If a loan is taken today, it would be paid back after a period of time. Then
amount of loan is measured in terms of money and it is paid back in money
Role of Money in Economic Development of the Developing Countries or Business
Development:
Apart from performing the conventional functions, i.e., as a medium of exchange, as a measure of value,
as a standard of deferred payment and as a store of value, money, through the expansion of monetary
economy and the development of money market, plays an active and developmental role in a
developing and mixed economy.
Money acts as a great mobilising agent in these economies in a number of ways by increasing resources,
generating new resources and channelising resources into productive uses.
1. Mobilisation of Saving
2. Allocation of Resources
3. Resource Mobility
4. Increase in Investible Profits
5. Resource Generation through Deficit Financing

4. SHORT NOTES:
Money Market
Money Market can be understood as the market for short term funds, wherein lending and borrowing of
funds varies from overnight to a year. It is an important part of the financial system that helps in
fulfilling the short term and very short term requirements of the companies, banks, financial institution,
government agencies and so forth.
Credit Information Bureau (CIB)
Credit Information Bureau (CIB) is a credit record of an individual, which contains the repayment history
of liability. The CIB is generated from central bank of a country. In the previous time, the CIB was
generated manually but now a days it is generated through online from the server of Central Bank. In
manual process it was a lengthy process which took about 15 to 20 days to generate, but now it requires
only few seconds.
Clearing House
A clearing house is an intermediary between buyers and sellers of financial instruments.
Clearing houses take the opposite position of each side of a trade. When two parties agree on the terms
of a transaction, a clearinghouse sits in the middle, acting as both the buyer and the seller.
Call Money Market
An interbank call money market is a short-term money market which allows for large financial
institutions, such as banks, mutual funds and corporations, to borrow and lend money at interbank rates
Discounting of Bills
An accepted draft or bill of exchange sold for early payment to a bank or credit institution at less than
face value after the bank deducts fees and applicable interest charges. The bank or credit institution
then collects full value on the draft or bill of exchange when payment comes due.

5. Inflation
Inflation
The term ‘Inflation’ is from the Latin term inflare meaning to “blow up or inflate.’’
According to C. CROWTHER, “Inflation is State in which the Value of Money is Falling and the Prices are
rising.”
TYPES OF INFLATION
1. Open inflation :
Situation in which no steps are taken to control rising prices.
2. Suppressed inflation-
Situation in which rising prices are controlled through measures taken by the government .
3. Creeping or mild inflation
Creeping or mild inflation is when prices rise 3% a year or less. According to the U.S. Federal Reserve,
when prices rise 2% or less, it's actually beneficial to economic growth.
4. Galloping Inflation
When inflation rises to ten percent or greater, it wreaks absolute havoc on the economy. Money loses
value so fast that business and employee income can't keep up with costs and prices.
5. Hyperinflation
Hyperinflation is when the prices of goods and services rise more than 50 percent a month.
Hyperinflation starts when a country's government begins printing money to pay for spending. As the
money supply increases, prices rise as in regular inflation.
6. Walking Inflation
This type of strong, or pernicious, inflation is between 3-10% a year. It is harmful to the economy
because it heats up economic growth too fast.
CAUSES OF INFLATION:
Inflation is caused due to several economic factors:
When the government of a country print money in excess, prices increase to keep up with the increase
in currency, leading to inflation.
Increase in production and labor costs, have a direct impact on the price of the final product, resulting in
inflation.
There are two main causes for inflation which is stated as below:
 Demand Pull
 Cost Push
Measures to control inflation:
1. Monetary measures-
Classical economists are of the view that inflation can be checked by controlling the supply of money.
Some of the important monetary measures to check the inflation are as under:
 Control over money
 Credit control
2.Fiscal measures-
Measures taken by the government to control inflation.
 Decrease in public expenditure
 Delay in payment of old debts
 Increase in taxes

6.  Over valuation of money
3. Other measures-
 Increase in the production
 Proper commercial policy
 Encouragement to savings