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Role of Money in Economic Development of Developing Countries

Economic development is believed to be dependent on the growth of technological progress, capital accumulation, and increase in quality and skills of the labour force but money is more of a veil and what matters is the goods and the productive factors which money can buy. In today’s world, money stands as a standard of value with which other things in a country can be measured. It is valued so much as it serves as a medium of exchange, we can use the currencies to purchase various goods and services. It influences price ranges, patterns of consumptions, investment, saving, and employment rate.

Money in Economic Development

Economic growth and welfare:

For a country to have improved economic growth, there must be an exchange of goods and services. When trading happens, the volume of transactions increases. The demand for money grows as transactions intensify. So, if enough money is not supplied to meet the demand, then the economic growth of a country will decrease.

With money, the producers and consumers can spend resources with some degree of rationality. They also get the freedom of choice of production and consumption. The optimum standards of living of people are affected by the availability of resources and technology, and in the absence of money, it is very difficult to achieve economic welfare.

Investment in un-utilized resources and projects:

It is believed that if there is an increase in the supply of money to a developing country, then the prices would increase and cause inflation. But this is not always true; the additional money can be used for projects which work on the un-utilized land and recourses.  A lot of resources get wasted and many are not utilised properly. Projects like land reclamation schemes, flood control, irrigation facility, development of cottage industries, anti-soil erosion measures, etc. can be focused on to increase the economic growth of the country.

Promoting investments:

Money can play a crucial role in stepping up the rate of investment and capital formation. First of the government of a developing country must encourage its citizens to break the subsistence nature of living. When a county starts to have more money, the investment rates becomes more than the savings rate and thus enabling the country to grow better. When proper monetary policies are brought about in the country, people will be encouraged to invest in various things and stop hoarding for themselves.

A medium of saving:

Since money acts as a standard measure of value, it makes the economic calculations quite simple. If the citizens of the country want to save their resources, then they can convert their resources and services into money and save it in a bank or somewhere else. Barter system being outdated and inconvenient makes money a standard medium of exchange which is accepted universally.

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