Final answer:
Banks are crucial financial intermediaries in the economy, helping to reduce transaction costs, making transactions secure, and playing a key role in money creation. They link savers and borrowers by pooling deposits and providing loans, which helps promote economic growth. The primary role of banks is financial intermediation, not currency issuance.
Step-by-step explanation:
Banks serve a vital role in the economy and society by acting as financial intermediaries. They facilitate the payment system, essential for the exchange of goods and services for money or other financial assets. Through financial intermediation, banks bring together savers, who wish to deposit their excess money, and borrowers, who seek loans, thereby reducing transaction costs and making transactions safer and easier. Moreover, banks play a critical role in the creation of money.
As financial intermediaries, banks stand between depositors who place money with them and borrowers who receive loans. This process involves pooling deposited funds and lending them out, thereby funneling financial capital to businesses and individuals that contribute to economic growth. Savers receive interest payments on deposits, while borrowers repay their loans with interest, establishing a cycle that supports the overall movement and growth of financial capital within the economy.
Other roles of banks, such as currency issuance, are generally the responsibility of a country's central bank, and not commercial banks. Thus, the primary roles banks play in society and the economy are financial intermediation and money creation.