The Use of Money

In order fully to appreciate the importance of the banking system within the economy it is necessary to consider the functions of money, and what constitutes ‘money’ in modern UK society. The size of the money supply and the methods of controlling it have become highly important factors to a government in pursuing its economic policy and especially so during the 1980s when the monetarists in both the UK and in the USA have succeeded in convincing their respective governments that control of the money supply must be the key factor. Their contention is that by restraining the growth of the money supply the rate of inflation can be reduced and competitiveness with the rest of the world improved. However, as events have indicated, the price is likely to be a high level of unemployment.