ABSTRACT
The importance of financial development in economic development stems primarily from two functions of money: it is a medium of exchange and a store of wealth. The use of money as a medium of exchange removes the need for a double coincidence of wants, which is the prerequisite for barter, and permits greater specialization and division of labour. Money’s store of wealth property eases the investment process by removing the necessity for a potential investor to control the physical surplus (either of labour time or in commodity form); money permits the possessors of surplus (savers) to lend to people wishing to make physical investment in plant, machinery and equipment, etc. The financial system is contributing to economic development if forms of money are available which fulfil both functions satisfactorily, and also if financial intermediaries exist to reduce any obstacles to the flow of funds from savers to investors.
