"Banks are efficient medium of exchange." Support the statement with argument.

Banks are efficient medium of exchange:

1. Demand deposits share the essential features of money.
2. The facility of cheque against demand deposit make it possible to directly settle payment without use of cash.
3. Demand deposits are accepted widely as a means of payment.

Money is called a medium of exchange because it serves as a common mode through which people can buy what they want and sell what they have. The use of money removes the barter system and thus ended the concept of double coincidence of wants. Money makes it easier to carry out trading activities. It acts as an intermediate in the exchange process and facilitates the buying and selling of things. A person having money can buy anything that he/she wants, unlike in the barter system. He/she can sell his/ her goods in the market in exchange for money and can buy other things with that money. In simpler terms, money has made the exchange process simpler.

People deposit their money with banks by opening a bank account. Banks keep the money safe and provides interest on the deposited amount. The deposited money can be withdrawn from banks as when required on demand. Bank deposits also facilitate easy transfer of money through cheques, demand drafts and internet banking.  

​Banks keep only 15% of their total cash deposits to meet the everyday withdrawal demands of their customers. Major portion of the remaining deposits are used to give loans to people at specific rate of interest.