The function of banks in national economy

To be able to understand the role and the work of banks properly, we must first say what the term 'national economy' means. It covers three principal fields: industry, commerce and direct services.

Industry provides energy, raw materials and goods. The extractive industry produces coal, oil, gas, iron ore and a number of other metals and minerals from the ground or seabed. These are needed by the manufacturing industry for the production of machines and all those goods, which the customers buy: the car, the TV set, furniture, the dishwasher in the kitchen etc.

However, we do not get these goods direct from the factory but buy them in a shop or a department store. They are transported there and delivered to our homes by railroad, sometimes by ship or air, especially if they have been imported.

This brings us to another field of economy, commerce, which can be divided into trade and the service industries.

Trade is the buying and selling of any commodity. It can be divided into home trade and foreign trade.

A television set is transported several times before we can switch it on in our living room. Transport is, of course, a service which industry, trade and the consumer make use of. But it is only one of the service industries.

If the television set is damaged or gets lost while being transported, the insurance pays for this. Insurance is a service industry that specialises in covering risks of all kinds: damage, loss, fire, accidents - to give just a few examples.

Industry and commerce depend on precise, up-to-date information, which could not be provided, if we did not have our highly developed communication services like the telephone, telex and the post.

You may have noticed that banks have not been mentioned yet. Where does banking link up with the other sectors of a national economy? The simple answer is everywhere.

Banking:

• collects money from its clients in small or large amounts

• provides efficient means and methods of payment for goods and services

• finances industry, commerce and direct services

• grants credits to consumers for the purchase of consumer goods

• sells foreign currencies

• has contacts with all important national and international money and capital markets, etc.