The Role, Functions and Definition of Money
Money can be and has been defined in many ways. For statistical purposes the stock of money is often defined in terms of certain clearly distinguishable, but analytically arbitrary,1 institutional dividing lines. Since the dividing line between monetary and non-monetary assets is, perhaps, arbitrary, (e.g., whether or not term deposits at banks, or savings banks, or other financial intermediaries should be included), the choice of assets to be included in the definition of money may be taken on pragmatic and empirical grounds. For example, money might be defined as that set of liquid financial assets which has both a close correlation with the development of the economy, and which is potentially subject to the control of the authorities. Attention then becomes focused on the fluctuations of that set of assets giving the clearest indications of the development of the economy and of the authorities’ efforts to influence that development.
KeywordsTransaction Cost Monetary Policy Time Deposit Current Account Trade Credit
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