ABSTRACT
The role of monetary and financial institutions is fundamental for economic development. The introduction of money and credit reduces the costs of exchange and transactions and extends the market for goods and services and the scope of the division of labor. Completing co-temporal transactions in goods and services through the intermediation of money, as opposed to barter, is yet another demonstration of a non-Euclidean world where the most direct line between two points is not necessarily the shortest (least expensive) distance (option). Expanding the principle of indirect exchange of goods and services to inter-temporal markets leads to credit and finance. The existence of a capital market decreases the transaction costs in time as the existence of money (or transportation, for that matter) decreases the transaction costs in space. There has been an understandable emphasis in economic development, as a result, on extending the reach of credit markets through the expansion of (formal) financial intermediation (Goldsmith 1969).
