MONEY, MONEY SUPPLY AND FINANCIAL
INSTITUTIONS
The
first aspect will be discussed, is to provide an overview of the functions of
money in the conduct of the course of economic activity. This description will
thereafter be followed by an analysis of the activities of commercial banks and
the role of banks in creating money. A final aspect and a description in this
chapter will explain the main functions of the central bank in supervising the
financial sector and monetary policy dalani run.
DEFINITION AND CHARACTERISTICS OF MONEY
DEFINITION AND CHARACTERISTICS OF MONEY
Based
on the characteristics of trading activities undertaken in the various
communities (in the past and the present), the economy can be distinguished:
"barter economy" and "money economy". Which is defined by
pereknomian barter "is a system in which economic activities of production
and trade is still very simple. Exchange activity is still limited, and trading
done by the exchange of goods or barter goods.
Which is defined by the cash economy "is an economy that is already using the tool money. As exchange trading activities. All countries in the world can already be classified as a "money economy".
That the community approved the use of any one thing as money, it must meet the following requirements:
- The value is not changed from time to time.
- Easy to carry around.
- Easy to be saved without reducing its value.
- Durable
- The amount is limited (no exaggeration).
- The object has the same quality.
Which is defined by the cash economy "is an economy that is already using the tool money. As exchange trading activities. All countries in the world can already be classified as a "money economy".
That the community approved the use of any one thing as money, it must meet the following requirements:
- The value is not changed from time to time.
- Easy to carry around.
- Easy to be saved without reducing its value.
- Durable
- The amount is limited (no exaggeration).
- The object has the same quality.
SOME FUNCTIONS OF MONEY
Based on the difficulties expressed in the last section, which will arise in the economy that do not use the money as mediation tool in trade, the role of economics or the functions of money in the conduct of trading activities, divided into four types. They are:
1. MONEY AS A TRANSITIONAL exchange
With the money, exchange activities will be much easier to implement when compared to in the barter trade activities. Someone who to obtain various types of goods to meet their needs, will be able to easily obtain it if he has enough money to purchase much-needed money he has can be easily exchanged for items of interest.
2. MONEY AS A UNIT VALUE
A further advantage and use the money in community sourced and its ability to act as a unit of value. What is meant by the unit value is the unit of measure that determines the value and various types of goods. With the money, the value of something good can be easily expressed, namely by showing the amount of money necessary to acquire the goods In addition, by comparing the value of various types of goods, will be determined the value of something the goods when compared with the value of other goods. Without the money value of goods things must be expressed in terms of comparing the rate of exchange in goods between something with various other items. For example, for an ox include value should be stated the amount of rice or rice, chickens, goats and various other items that needed to be able to obtain these bulls.
The use of money as the unit of value that the community do not bother to determine the value of something of goods by way of determining the exchange of goods with various other items. By knowing that the price was 50,000 dollars a pair of shoes, clothes 25 000 dollars a piece, and 2500 rupiah a kilo of rice, could easily have been known to comparative value of these items. Communities do not bother to remember that one pair of shoes is worth a two-piece outfit and equal in value to 20 pounds of rice;
3. MONEY AS A TOOL paid DELAYED
Transactions in the economy that has grown a lot done with a deferred payment, or credit sales. The buyer obtaining the goods in advance and pay him in the future. The use of money as a medium of exchange in trade can promote development that is so because the seller will feel more confident that the deferred payment is consistent with that expected. In other words, the quality of the object to be gained in the future as the payment of sales, that money will be in accordance with that expected at the time of selling the goods.
One important condition for the third function of money is executable so well is that the money used must remain stable. Value for money said to be stable if the amount of money spent will still get the same stuff a lot and the same quality and time to time. If this requirement is not met then the function of money as a measure for delayed payment will not be able to run perfectly. Perhaps people would rather accept the delayed payment in the form of exchange of goods and to avoid the payment is delayed, state as it always happens at the price of goods prices rose fast from time to time.
4. MONEY AS A store of value
Based on the difficulties expressed in the last section, which will arise in the economy that do not use the money as mediation tool in trade, the role of economics or the functions of money in the conduct of trading activities, divided into four types. They are:
1. MONEY AS A TRANSITIONAL exchange
With the money, exchange activities will be much easier to implement when compared to in the barter trade activities. Someone who to obtain various types of goods to meet their needs, will be able to easily obtain it if he has enough money to purchase much-needed money he has can be easily exchanged for items of interest.
2. MONEY AS A UNIT VALUE
A further advantage and use the money in community sourced and its ability to act as a unit of value. What is meant by the unit value is the unit of measure that determines the value and various types of goods. With the money, the value of something good can be easily expressed, namely by showing the amount of money necessary to acquire the goods In addition, by comparing the value of various types of goods, will be determined the value of something the goods when compared with the value of other goods. Without the money value of goods things must be expressed in terms of comparing the rate of exchange in goods between something with various other items. For example, for an ox include value should be stated the amount of rice or rice, chickens, goats and various other items that needed to be able to obtain these bulls.
The use of money as the unit of value that the community do not bother to determine the value of something of goods by way of determining the exchange of goods with various other items. By knowing that the price was 50,000 dollars a pair of shoes, clothes 25 000 dollars a piece, and 2500 rupiah a kilo of rice, could easily have been known to comparative value of these items. Communities do not bother to remember that one pair of shoes is worth a two-piece outfit and equal in value to 20 pounds of rice;
3. MONEY AS A TOOL paid DELAYED
Transactions in the economy that has grown a lot done with a deferred payment, or credit sales. The buyer obtaining the goods in advance and pay him in the future. The use of money as a medium of exchange in trade can promote development that is so because the seller will feel more confident that the deferred payment is consistent with that expected. In other words, the quality of the object to be gained in the future as the payment of sales, that money will be in accordance with that expected at the time of selling the goods.
One important condition for the third function of money is executable so well is that the money used must remain stable. Value for money said to be stable if the amount of money spent will still get the same stuff a lot and the same quality and time to time. If this requirement is not met then the function of money as a measure for delayed payment will not be able to run perfectly. Perhaps people would rather accept the delayed payment in the form of exchange of goods and to avoid the payment is delayed, state as it always happens at the price of goods prices rose fast from time to time.
4. MONEY AS A store of value
The
use of money allows a person's wealth is stored in the form of money. If the prices of goods stable, store of wealth in the form of money is more profitable than storing it in the form of goods, in a developed economy. Is especially the kind of money which the bank's money or demand deposits. This kind of money does not require a fee to store and easy to take care of it. This is because if someone has this money. storage and handling is not done by owners, but by commercial banks "save" money. Although the money was not in the hands of the owner it can be easily retrieved if you want to use the money. Owners need to do is write a check that shows the amount of money to be paid to whom payment is to be done.
THE ROLE OF BANKS AND ACTIVITIES
1. Commercial banks or merchant banking. This institution is a bank that not only can lend or invest the savings gained as species, but also can distinguish the loans from its own create demand deposits. How do the noodles will be described later.
2. Savings banks. Mi bank activities such as corporate lending nearly Savings, taking deposits in savings or long-term deposits and then lend or invest money.
3. corporate lending. A financial institution receiving deposits in savings or long-term deposits (ie can only be taken back by the owner sesudab some specified time), and selanjutny; lend nan invest the savings.
4. The stock market. An institution whose primary function as become places of shares traded companies.
5. Insurance company consists of company money by promising obtained a number of will make restitution to individuals, companies and other agencies when an event such as: accidents, fires, and loss and so on-apply to the person, company or organization to pay insurance money to perusabaan insurance. Who collected his insurance money will be invested oleb agency or lent.
SOME FEATURES OF BANKS
A said that commercial banks are the most important financial institutions and the most influence in economic activity. This is because commercial banks have some features that are not owned by financial institutions other mark.
features 1: Checks Savings Can be Taken to
a privilege it is the ability of commercial banks to create money that can be taken at any time by check, which is saving features to create savings by using a check drawn can owned by other financial institutions. Savings in such institutions should only be made if the owners come directly to those agencies.
feature 2: Can Creating "Power Buy"
The second feature sourced from commercial banks and the ability to create new purchasing power or eliminate the purchasing power in the economy. Its activities will automatically lead to changes in available money in the economy. Activities "create" or "eliminate" power purchase made by a commercial bank or canceled if he gives loans to its customers. How the force of the process will be described later.
MONEY AND FINANCIAL INSTITUTIONS
Cause commercial banks can cause a significant impact in economic activity.
Privileged 3: Provide Short-Term Loans
The third privilege of originating banks and lending money does. Commercial banks mainly provide short-term loans. This means that commercial banks are an important agency role for companies to balance the financial situation by moving up and down
economy activities. Economy at achieving a high level of activity is usually pant more many employers require working capital, and banks can readily provide the necessary capital. Conversely, if the decline of economic activity, companies must reduce their activities. By itself the need to obtain additional working capital will be reduced then the employer will return the capital they borrow from commercial banks.
DEVELOPMENTS IN VARIOUS COUNTRIES OF CENTRAL BANK
At this time almost every country has a central bank, a bank that authorized the government to regulate and supervise the activities of financial institutions contained in the. economy. Based on the good execution of this function the central bank may to defined as a financial institution owned by the government in general with responsibilities to regulate and supervise the activities of the stability of financial institutions, and to ensure that the activities of financial institutions to help create a level of activity . High and stable economy. Not all central banks that exist today than has been recognized since the central bank was established. In the UK and Sweden for example, the central bank is now in the beginning was the commercial banks. In Swedish banks that now mi a central bank was founded in 1660 but a new path Lawn 1897 the bank acts as the central bank.
THE ROLE OF BANKS AND ACTIVITIES
1. Commercial banks or merchant banking. This institution is a bank that not only can lend or invest the savings gained as species, but also can distinguish the loans from its own create demand deposits. How do the noodles will be described later.
2. Savings banks. Mi bank activities such as corporate lending nearly Savings, taking deposits in savings or long-term deposits and then lend or invest money.
3. corporate lending. A financial institution receiving deposits in savings or long-term deposits (ie can only be taken back by the owner sesudab some specified time), and selanjutny; lend nan invest the savings.
4. The stock market. An institution whose primary function as become places of shares traded companies.
5. Insurance company consists of company money by promising obtained a number of will make restitution to individuals, companies and other agencies when an event such as: accidents, fires, and loss and so on-apply to the person, company or organization to pay insurance money to perusabaan insurance. Who collected his insurance money will be invested oleb agency or lent.
SOME FEATURES OF BANKS
A said that commercial banks are the most important financial institutions and the most influence in economic activity. This is because commercial banks have some features that are not owned by financial institutions other mark.
features 1: Checks Savings Can be Taken to
a privilege it is the ability of commercial banks to create money that can be taken at any time by check, which is saving features to create savings by using a check drawn can owned by other financial institutions. Savings in such institutions should only be made if the owners come directly to those agencies.
feature 2: Can Creating "Power Buy"
The second feature sourced from commercial banks and the ability to create new purchasing power or eliminate the purchasing power in the economy. Its activities will automatically lead to changes in available money in the economy. Activities "create" or "eliminate" power purchase made by a commercial bank or canceled if he gives loans to its customers. How the force of the process will be described later.
MONEY AND FINANCIAL INSTITUTIONS
Cause commercial banks can cause a significant impact in economic activity.
Privileged 3: Provide Short-Term Loans
The third privilege of originating banks and lending money does. Commercial banks mainly provide short-term loans. This means that commercial banks are an important agency role for companies to balance the financial situation by moving up and down
economy activities. Economy at achieving a high level of activity is usually pant more many employers require working capital, and banks can readily provide the necessary capital. Conversely, if the decline of economic activity, companies must reduce their activities. By itself the need to obtain additional working capital will be reduced then the employer will return the capital they borrow from commercial banks.
DEVELOPMENTS IN VARIOUS COUNTRIES OF CENTRAL BANK
At this time almost every country has a central bank, a bank that authorized the government to regulate and supervise the activities of financial institutions contained in the. economy. Based on the good execution of this function the central bank may to defined as a financial institution owned by the government in general with responsibilities to regulate and supervise the activities of the stability of financial institutions, and to ensure that the activities of financial institutions to help create a level of activity . High and stable economy. Not all central banks that exist today than has been recognized since the central bank was established. In the UK and Sweden for example, the central bank is now in the beginning was the commercial banks. In Swedish banks that now mi a central bank was founded in 1660 but a new path Lawn 1897 the bank acts as the central bank.
CENTRAL
BANK OF
THE DIFFERENCE
BETWEEN AND
BANKS
Some of these differences are
explained in the following description:
In economy there is only one central bank the other hand, commercial banks. have higher numbers. Nevertheless the central bank will have greater influence on the economic activity when compared with the capabilities of the commercial banks, why is because, as will be further described later, the central bank was given the task by the government to regulate the activities of commercial banks.
Oleb owned commercial banks mostly private parties in the developed and developing countries the central bank, owned or controlled by the government. In some countries, for example in our country there are times when commercial banks are government owned most of the existing commercial banks, but its management and its activities are no different from an ordinary private bank which their activities are primarily to lend and invest, and in running these activities they should follow the guidelines established by the central bank.
MAIN FUNCTION OF CENTRAL BANK
If you look for and the activities undertaken by central banks in many countries, it will be able to take that in general the central bank was commissioned by the government to run the ink the following activities:
- Acting as a bank to the government.
- Acting as a bank to commercial banks.
- Oversee the activities of commercial banks and other financial institutions.
- Oversee the balance of foreign trade activities.
- Make coins and paper money needed to launch a manufacturing and trading activities.
In economy there is only one central bank the other hand, commercial banks. have higher numbers. Nevertheless the central bank will have greater influence on the economic activity when compared with the capabilities of the commercial banks, why is because, as will be further described later, the central bank was given the task by the government to regulate the activities of commercial banks.
Oleb owned commercial banks mostly private parties in the developed and developing countries the central bank, owned or controlled by the government. In some countries, for example in our country there are times when commercial banks are government owned most of the existing commercial banks, but its management and its activities are no different from an ordinary private bank which their activities are primarily to lend and invest, and in running these activities they should follow the guidelines established by the central bank.
MAIN FUNCTION OF CENTRAL BANK
If you look for and the activities undertaken by central banks in many countries, it will be able to take that in general the central bank was commissioned by the government to run the ink the following activities:
- Acting as a bank to the government.
- Acting as a bank to commercial banks.
- Oversee the activities of commercial banks and other financial institutions.
- Oversee the balance of foreign trade activities.
- Make coins and paper money needed to launch a manufacturing and trading activities.
SUPERVISING COMMERCIAL BANKS AND
OTHER FINANCIAL INSTITUTIONS
Financial
institutions, including banks, is a company looking to profit from lending
money they have or are ditabungkan him to gain the maximum benefit they must
lend to companies and individuals-individuals as much as they might lend. Moreover,
this progress is too stressed by financial institutions, then there will be bad
consequences to society in the economy.
Financial institutions may be giving too much credit, so that cash is left as a reserve is not sufficient anymore. On when people attract more money and financial institutions, they will not have enough funds to make the payments. That would eliminate the state as public trust exception. Financial institutions. In addition, the loan will be monitored will cause financial institutions afraid to lend money to businesses that are very high risk.
FOREIGN CURRENCY EXCHANGE RATE STABILITY SUPERVISING
Financial institutions may be giving too much credit, so that cash is left as a reserve is not sufficient anymore. On when people attract more money and financial institutions, they will not have enough funds to make the payments. That would eliminate the state as public trust exception. Financial institutions. In addition, the loan will be monitored will cause financial institutions afraid to lend money to businesses that are very high risk.
FOREIGN CURRENCY EXCHANGE RATE STABILITY SUPERVISING
One
of the efforts that need to be done to create economic stability is to maintain
stability in the foreign exchange rate. To achieve this goal first of all must
be maintained so that there is a balance between exports and capital inflows
and united with the flow of imports to the capital market on the other. The
next must also be maintained so that there is sufficient foreign exchange reserves
that can at times be used to finance the payment of excessive foreign currency
to other countries due to flow out to the payment of import and other needs are
greater than inflows received from exports and income beyond.
Ensure
that such circumstances can always be realized is one of the important tasks of
the central bank. For example, if there are pressures that will lower the value
of foreign exchange. The central bank must make an effort to eliminate this
pressure. One step would be to raise interest-rates. With rising interest
rates, investment and saving money into more profitable in the country and will
encourage capital inflows. Another step is to try to limit imports One factor
that can drop the value of currency trading is a state of wild country where
imports are smaller than exports. So to keep the exchange rate remained stable
central bank must take steps to ensure that the public does not import the
extravagant and other countries. Based on the above example can be said that
the central bank is an institution government duty to maintain stable exports, imports, and the flow of
foreign capital in order to ensure the achievement of the State's economy.
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