I had almost said timidity, is the life of banking”

(Walter Bagohot, 1826-1877)

Money is whatever generally acceptable in order to perform functions of paying for goods and services. In the past it took the form of a variety of commodities, though precious metals tended to be favoured because of a number of convenient physical character­istics, above all the fact that they are limited in supply. With the development of banks, paper currency has come to succeed precious metals as the medium of exchange, initially in the form of gold receipts, and then as central bank notes, backed by the authority of government. Nowadays bank deposits are generally accepted as money, and form the greater part of the money supply. Although anything can serve as money, the material of it should possess some important qualities: portability, durability, uniformity, divisibility (to make a change), recognizability.

Today money consists of coins, paper currency, and transaction account deposits. Now we are beginning to make electronic transfers of money through electronic funds transfer systems (EFT). EFT systems range from Automated Teller machines (ATM) or cash dispensers and to ‘virtual money’ (WEB money ) on the Internet.

The banking system of Great Britain consists of a number of institutions, with the Bank of England playing a crucial role in regulating the supply of money and influencing interest rates, overseeing the operations of commercial banks. The Bank of England also man­ages the National Debt.

According to the functions they perform banks may be divided into the following groups: commercial banks, savings banks, investment banks, trust companies.

Commercial banks fall into two groups, ‘clearing’ and ‘secondary’ banks. In common with other commercial institutions, they operate by acting as financial intermediaries, borrowing money in order to re-lend it, which they are able to do profitably because of their specialised knowledge of financial markets.

Savings banks accumulate savings in small accounts, give credit for businesses and, as a rule, invest their funds in long-term credit instruments.

Investment banks raise funds for industry on the various financial markets, finance international trade, issue securities, and deal with takeovers and merges.

Trust companies administer funds or property for the benefit of others; they serve as trustees for property.

Banks are distinguished from other intermediaries by the fact that their liabilities (bank deposits) can be spent directly as money, which makes them the focus of monetary policy.

Comprehension:

1. Give the definition of money.

2. What are the main functions of money?

3. What is the role of the Bank of England in the economy of the country?

4. Describe the operations of commercial banks.