We have seen that money is primarily a medium of exchange and that there must be sufficent money supply in the country to facilitate the transaction processes in many markets.It shall not be neither excessive nor fall short of the output GDP as it is called , that we generate.If too much of money is chasing too few goods that will be inflation- state of rising prices and that if output outsmarts limited money supply deflation will set in .the real economy will suffer and unemployment will set in..Keynes told that inflation is unjust and deflation is inexpedient...By taking away 85 % 0f money supply and not replacing it by new usable notes Mr Modi's Government caused a great damage to Indian economy not to speak of many devastating economic and social consequences which we shall explore in the text.
Narrowly defined. money supply in a country is equal to currency plus bank deposits.People have their preference either to hold cash or bank deposit. It is their will or choice .you cannot compel anyone in what form one should hold ones wealth.So there is a currency deposit ratio at any given time.It has greater implications for the economy.
Since we introduced the term bank let me brief about it when I taught pre degree students in Mahe college near Tellicherry I learnt Hart definition of bank which I will try to collect from memory:
A bank or banker is a company or person carrying on the business of accepting moneys and collecting draft subject to the obligation of honoring cheques drawn upon him from time to time to the extent of capital available on his current account .
You would have read in the newspaper that both the state bank and some other private sector banks have introduced stupid regulations on keeping huge minimum balance and also levying tax on withdrawls...I can call this only as a rascalised behavior.
More on this later.We must educate them that we have lent money to the banker without which he cannot do business He borrows from us shot and lend the money long and make a profit.We all know that given the high inflation rate in our country foolishly we keep the money in the bank and now we are charged and taxed in all possible ways we are living in troubled times indeed.
I should tell one technical point here .The money supplied by the RBI , our central bank is called base money or high powered money because the commercial bank creates more money out of this base money or high powered money.In this sense depending upon the cash reserve ratio ie depending upon the amount of cash that they keep with themselves to meet the cash drain everyday and also the statutory requirements of cash to be kept at the central bank the bank can manufacture credit money and give push to the expenditure stream of the economy..Thus money plus credit govern the expenditure side of the economy.Mr Modi's govt punctured this crucial chain ..There were too much old currency notes outside but very little new notes inside and they also went into hoards given the criminal role of some bankers not all So they all choked the economy to death for a few months atleast
.
Narrowly defined. money supply in a country is equal to currency plus bank deposits.People have their preference either to hold cash or bank deposit. It is their will or choice .you cannot compel anyone in what form one should hold ones wealth.So there is a currency deposit ratio at any given time.It has greater implications for the economy.
Since we introduced the term bank let me brief about it when I taught pre degree students in Mahe college near Tellicherry I learnt Hart definition of bank which I will try to collect from memory:
A bank or banker is a company or person carrying on the business of accepting moneys and collecting draft subject to the obligation of honoring cheques drawn upon him from time to time to the extent of capital available on his current account .
You would have read in the newspaper that both the state bank and some other private sector banks have introduced stupid regulations on keeping huge minimum balance and also levying tax on withdrawls...I can call this only as a rascalised behavior.
More on this later.We must educate them that we have lent money to the banker without which he cannot do business He borrows from us shot and lend the money long and make a profit.We all know that given the high inflation rate in our country foolishly we keep the money in the bank and now we are charged and taxed in all possible ways we are living in troubled times indeed.
I should tell one technical point here .The money supplied by the RBI , our central bank is called base money or high powered money because the commercial bank creates more money out of this base money or high powered money.In this sense depending upon the cash reserve ratio ie depending upon the amount of cash that they keep with themselves to meet the cash drain everyday and also the statutory requirements of cash to be kept at the central bank the bank can manufacture credit money and give push to the expenditure stream of the economy..Thus money plus credit govern the expenditure side of the economy.Mr Modi's govt punctured this crucial chain ..There were too much old currency notes outside but very little new notes inside and they also went into hoards given the criminal role of some bankers not all So they all choked the economy to death for a few months atleast
.
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