In this book we have used the demand for money and its supply without inquiring into the foundations for such relationships. It is time to dwell on these issues somewhat. Students have, no doubt, been exposed to these foundations in earlier courses in macroeconomics. The discussion here therefore will be brief. We begin with a discussion of the importance of the role of the financial system in economic development. We then move on to a discussion of elementary models of money supply. The discussion here includes the effects of ‘financial expression’—a characteristic of many developing countries-on the money supply. We then proceed to discuss the underpinning of the demand for money.