Conclusion

The role of technology is to serve a purpose and facilitate the lives of individuals and the society as a
whole. The challenge to an innovation is to find a place in the market and in the heart of consumers,
by serving a need, and at the same time to provide the economic viability and a sustainable profitable
model to the companies. M-Pesa proved that it is possible to bring technology to the underserved,
and with that, bring economic progress and prosperity.
Mobile money is just the beginning of what technology can do to for Emerging Markets, but is also a
great example of the possibilities for any technology company willing to expand their horizons. There
are 6.92 billion people living in the world, many still struggling with basic needs and considered
digitally excluded. I believe that technology can and will be a great part of the change.

OBJECTIVES
Understand the evolution of money in india : Students will be able to:
Explain how the change from many different bank-issued notes to one federal
currency helped unify
the country
Define the gold standard and explain why it helped to global power
Identify two ways the Bureau of Engraving and Printing protects against
counterfeiting
Explain why and when people in the US and other countries hoard currency

Evolution of Money is probably one of the biggest invention in human history.The moneywas not invented but it
evolved with passage of time according to the changing requirements of economies.It is not a result of brain storming
of some economist rather there is a long process of evolution since start of civilization to this modern complicated
credit system.
It is generally believed that evolution of money has passed through following six stages.

Barter
Commodity Money
Metallic Money
Paper Money
Credit Money
Electronic Money
These stages of evolution of money are discussed as under.
1 Barter.
In the beginning of civilization the needs of people were very limited and therefore they used to Exchange their goods with other peoples goods or
Service. Such a system of exchange where goods and services are directly exchanged for each other without the use of money is called barter system.
Barter is possible only if the wants of the people are very few, area of exchange is limited and people are living a very simple life. There were many
difficulties associated with barter system. So gradually this system of exchange was replaced with money system of exchange.
2 Commodity Money:
Money is in fact discovered to remove Difficulties of barter. In fact money has evolved in response to the urgent needs of the various stages of
economic growth. In the beginning of civilization goats, animal-hides, axe-heads, knives, arrows, slaves etc., have been used as money in different
Perform the basic functions of money. It was difficult to borrow and lend and it was more difficult to measure and store the value of goods and services.
Further the volume of trade remained very limited due problem of transportation of commodity money.

3 Metallic Money.
Money made of metal is called metallic money. In the beginning the pieces of gold and silver were used as money but it did not solve the complicated
problems of exchange. It was very difficult to I measure the value with these jaw pieces of metal. Another problem was transportation and storage
of precious metals . This problem was solved by making standardized coins. In the beginning full bodied coins of gold and silver were introduced but
latter on these were replaced with token coins. Now a days different alloy are being used for minting of coins.
The metallic coins have a specific weight and shape. Coins are only used for smaller retail payments because it is difficult to count, transport and store
them.
(4) Paper Money
In the third stage of the evolution of money paper money was discovered. It is believed that the start of paper money was issuance and acceptance of
receipts of gold smiths who were acting as money lender in old Iraq.
These goldsmiths were rich, respectable and were men of repute. They used to keep the valuables of the people in the safe rooms and issued receipts
as a proof for the goods stored. These certificates became a convenient credit Instruments and were freely used for borrowing and lending and making
payment. In the 19th century commercial banks started issuing their own notes of different colors and denominations.
It created confusion and were not generally acceptable. Central bank removed this confusion by taking over the power of issuing bank notes. In the
beginning the paper money was fully convertible into full bodied gold coins. During the period between the two world wars, it became difficult to convert
the paper money into gold. Now almost all the countries issue currencies according to the monetary requirements of the economy and government
provides securities for issuance of currency.
5 Credit Money:
In the present day modern economies or bank money is used for making personal business payments. In the developed countries, transactions are
taking place with the help of deposits or checking accounts with paper money. Demand deposits or money sited in current accounts are easily
convertible cash, therefore they are convenient and safe.
6 Electronic Money
TODAY THE invention of computer and its application, the form and shape of business are changing fast. The concept OF commerce is gaining vast
popularity. The mode payment is being transformed from cash or quest to electronic transaction from one account another. This form of electronic
payment is early referred to as electronic money. There are many problems in this type of transactions, but it aiming popularity day by day. i evolution of
money has not come to an end, it will, never come to an end.. As economies of the world are changing features and shapes, money is also changing
its m with the due course of time. Globalization of the anomies and expansion of e-commerce has given new dimension to modes of payment and has
angled the nature and features of money.

Money Travels
The shift to paper money in Europe increased the amount of international trade that could occur. Banks and the ruling classes started buying currencies
from other nations and created the first currency market. The stability of a particular monarchy or government affected the value of the country's
currency and the ability for that country to trade on an increasingly international market. The competition between countries often led to currency wars,
where competing countries would try to affect the value of the competitor's currency by driving it up and making the enemy's goods too expensive, by
driving it down and reducing the enemy's buying power (and ability to pay for a war), or by eliminating the currency completely.

Mobile Payments
The 21st century gave rise to two disruptive forms of currency: Mobile payments and virtual currency. A mobile payment is money rendered for a
product or service through a portable electronic device such as a cell phone, smartphone or PDA. Mobile payment technology can also be used to
send money to friends or family members. Increasingly, services like Apple Pay and Samsung Pay are vying for retailers to accept their platforms for
point-of-sale payments.

NTRODUCTION TO EVOLUTION OF MONEY

UNIT STRUCTURE
1. Learning Objectives
2. Introduction
3. Concept of Money
1. Approaches to the definitions of Money
4. Evolution of Money
1. Stages in the Evolution of Money
5. Different types of Money
1. Metallic Money
2. Paper Money
3. Credit Money
4. Money proper and Money of Account
5. Legal Tender Money and Optional Money
6. Characteristics of Money
7. Functions of Money
8. Let Us Sum Up
9. Further Readings
10. Answers To Check Your Progress
11. Possible Questions

LEARNING OBJECTIVES

After going through this unit, you will be able to:

explain the concept of money
describe the evolution of money
state the different types of money
explain the characteristics of money
discuss the functions of money

INTRODUCTION

In this unit, we are going to explain the concept of money. Various definitions of money are given by
different economics and these will be part of our discussion. In this connection it is neceary to discuss the
evolution of money. The origin of money can be linked to the increasing difficulties and inconveniences
connected with the barter system. The evolution of money has passed through various stages. After the
evolution of money of money the important topic to be discussed is the different types of money and the
characteristics of money. We will also discuss the various functions performed by money and how money
helps the mankind in their day to day life.

CONCEPT OF MONEY

In this section we discuss the concept of money.

Anything that is generally acceptable as a means of payment in the settlement of all transactions,
including debt, is money. Money is the generally-used medium of exchange or means of transferring
purchasing power. The unique feature of money is that it is generally accepted as a medium of exchange
or as a means of payment. Money has the power to buy things directly in all markets. It need not require
to be converted into something else before it can be spent or used for the settlement of debt. In simple
terms what we use to pay for things or services is referred to as money.
Various things such as goats, cows, rice, silver and gold pieces and coins, paper currency notes and
demand deposits of banks have served as money at different times and place. At present, to a layman in
India the Rupee is the money, in England the Pound and in America the Dollar is the money. But, to an
economist, all these are (Rupee, Pound and Dollar) merely different units of money.
Money belongs to the category of things which are not amenable to any single definition. It has been
defined differently by different economists. Some of the definitions of money are stated below :
According to Walker, 'Money is that money does'.
Saligman defines money as 'One thing that possesses general acceptability.'
According to Coulborn, 'Money may be defined as the means of valuation and payment.'
Hicks says that 'Money is defined by its functions.'
According to Kent, 'Money is anything which is commonly used and generally accepted as a medium of
exchange or as a standard of value.'
Professor W. T. Newlyn says 'Anything is money which functions generally as a medium of exchange.'
According to Knapp, ' Anything which is declared as money by the state, that becomes money.'

According to D. H. Robertson, anything which is widely accepted in payment for goods or in discharge of
other kinds of business obligations is called money.'
Crowther defines money as 'Anything that is generally acceptable as a means of exchange and at the
same time acts as a measure and store of value.'
A complete definition of money should include all the important functions performed by money and also its
basic characteristic, i.e., general acceptability. Thus, Crowther's definitions may be considered the best as
it covers both these qualities.
Keeping these definition in mind let us discuss the various approaches to these definitions.

Approaches to the definitions of Money

On the basis of the constituents of money, the following four approaches to the definitions of money may
be mentioned :
(1) Traditional Approach : According to this approach, money (M) includes currency (C) and demand
deposits (DD).
M = C + DD
(2) Monetarist Approach : According to this approach, money (M) includes currency (C), demand deposits
(DD) and time deposits (TD).
M = C + DD + TD
(3) Liquidity Approach : According to this approach, money (M) includes currency (C), demand deposits
(DD), time deposits (TD), savings bank deposits (SB), shares (S), bonds (B), etc.
M = C + DD + TD + SB + S + B, etc.
(4) The Central Bank Approach : According to this approach, money (M) includes currency (C), demand
deposits (DD), time deposits (TD), credit from non-bank financial institutions (CNBFI) and credit from
unorganised agencies (CUA).
M = C + DD + TD + CNBFI + CUA

CHECK YOUR PROGRESS

A. Give the Crowther's definition of money. Why is it the considered the best definition of money ?

EVOLUTION OF MONEY

After discussing the concept of money along with the various definitions of money and approaches to
them, let us now discuss the evolution of money. With the development of the society, the division of
labour and specialisation increased. This results in the expansion of the volume of production and trade.
In such conditions, the barter system created difficulties, such as, the problem of double coincidence of
wants, the problem of common measure of value, the problem of divisibility, the problem of storing wealth,
the problem of transportation, etc. In order to overcome these difficulties, money was invented. According
to Crowther, Money is one of the most fundamental of all man's inventions. .......'
1. The first use of money was as a unit of account or a measuring- rod in terms of which all other things
were to be measured and compared. The introduction of money as a unit of account
(i) helped to express the value of goods in terms of a common unit of account;
(ii) made the non-comparable goods comparable; and
(iii) extended the scope of division of labour and specialisation.
2. The second use of money was as a medium of exchange . For example, corn was no longer
exchanged for meat; it was sold for money and similarly meat is also sold for money. The use of money
as the medium of exchange.
(i) removed the difficulty of bringing the two parties together,
(ii) saved time and effort and
(iii) made multilateral trade possible.
3. The third important use of money was as store of value. The use of money as the store of value solved
the problem of storing wealth.
Thus we have come to konwn about the three functions of money. There three functions or uses of
money, as (i) unit of account, (ii) medium of exchange and (ii) store of value, performed by a commodity
(called money) together constitute the invention of money.

Stages in the Evolution of Money

The evolution of money has passed through the following stages depending upon the progress of human
civilisation at different times and places.
(i) Animal Money : The agricultural communities in the primitive society used domestic animals as money.
Cattle were considered the common instrument of exchange. Cattle were used to measure the value of
different things to be exchanged. In ancient India, according to Artha Veda, Go-Dhan (cow wealth) was
accepted as a form of money. There is evidence to suggest that many things like beads, shells, eggs,
ivory, nails, pigs, yarn etc. were used as money from time to time. For instance, Chinese character for
money resembles a 'Cowerieshell indicating use of cowries as money.
(ii) Commodity Money : From the beginning of human civilisation various types of commodities have been
used as money. A number of commodities like bows, arrows, animal skins, shells, precious stones, rice,
tea, etc., were used as money. Different factors like the location of the community, climate of the region,
cultural and economic development of the society etc. influence the selection of a commodity to serve as
money.
(iii) Metallic Money : Discovery of precious metals and the the spread of civilisation and trade relations by
land and sea, led metalic money to take place of commodity money. Gold and silver were the metals
mostly used to form metallic money. Because of their scarcity, usefulness and attractiveness, gold and
silver were regarded as natural money. They were choosen because of their convenience, storability, high
value density and easy portability.
(iv) Paper Money : The Chinese used one-fool square pieces of deer skin as money and later became the
first people to use paper money. One of the reasons for issue of paper currency was shortage of copper
for making coins. Europe learnt of paper money two hundred years later than Marcopolo visited China.
Initially, the merchants used to carry paper receipts against metallic money due to the safety problem of
carrying costlier metals like gold and silver from one place to another. With the passage of time, the
scarcity of metals resulted in the introduction of convertible paper currency by the state authorities; paper
money was convertible into metals.
(v) Credit Money : Another stage in the evolution of money in the modern world is the use of the credit
money or bank money. Credit money or bank money was used due to the development of banking
institutions and their credit creation activities. Credit money (cheques) are issued against demand
deposits. In fact, it is not money; it only performs the functions of money. Credit money, therefore is
regarded as near-money.
(vi) Plastic Money (Credit Cards): Increasing affluence combined with increasing complexity of life in the
modern society has led to the use of credit cards. Credit cards provide convenience and safety in the
purchasing process. It is generally known as 'Plastic Money'. The credit cards are made of plastic. Credit
card enables the cardhalders to purchase products or services without making immediate payments. It is
a document which can be used for purchase of goods and services all around the globe. (But in real
sense credit card is not money)
Thus, the evolution of money has been passed through various stages: from animal money to commodity
money, and to metallic money to paper money and from credit money to plastic money.
LET US KNOW
Call deposits or deposit at call accounts are maintained by banks with other banks
Demand deposits that are repayable on customer's demand. These comprise the following :
1. Current account deposits.
2. Savings bank deposits.
3. Call deposits
In modern economy, coins, paper notes, cheques, credit cards etc, all serve as money.

ACTIVITY

A. List out various kinds of near money.

Different types of Money

Now, we will discuss the different types of money. Broadly speaking, there exist three main types (forms)
of money in a modern economy : (1) metallic money, (2) paper money, and (3) credit money. Economists,
however, further classify money into many other forms. The important types of money are explained
below:

Metallic Money

Money made of any metal is called metallic money. It refers to coins made of various metals like gold,
silver, nickel, copper, etc. The right of minting coins is the monopoly of the State. Metallic money is further
classified into:
(a) Standard Money : Standard money or full bodied money is that money whose face value (value as
money) is equal to the intrinsic value (value as commodity). Standard money/coins are generally made of
gold and silver.
(b) Token Money : Token money is that money whose face value (value as money) is greater than its
intrinsic value (value as commodity). Token money/coins are generally made of cheaper metals, like
copper, nickel, etc. (Indian one rupee coin is token money)

Paper Money

Money made of paper is called paper money. Paper money consists of currency notes issued by the
government or the central bank of a country. Paper money is of four Types :
(a) representative paper money;
(b) convertible paper money,
(c) inconvertible paper money; and
(d) fiat money.
(a) Representative Paper Money : The paper money which is fully backed by gold and silver reserves is
called representative paper money.
(b) Convertible Paper Money : Convertible paper money is that paper money which is convertible into
standard coins.
(c) Inconvertible Paper Money : Inconvertible paper money is that paper money which is not convertible
into standard coins or valuable metals.
(d) Fiat Money : Paper money which circulates on the authority (i.e. fiat) of the government is fiat money.
Fiat money is created and issued by the State. It is only a variety of inconvertible paper money.

Credit Money

Credit money or bank money was used due to the development of banking institutions and their credit
creation activities. The term 'credit money' refers to the demand deposits of the commercial banks.
Demand deposits of bank are withdrawable through cheques. It serve as money and the cheques are
accepted as a means of payments. A cheque by itself is not money; it is only a credit instrument which is
used and accepted as medium of exchange. That is why, credit money is regarded as 'near money'.
1. In a modern economy, the major portion of money supply consists of currency money (paper money
and coins) and bank money.
2. In the business world, various types of credit money are in use viz. cheque, travellers cheque, bill of
exchange, promissory notes, bank draft, hundi etc.

Money Proper and Money of Account

Money Proper or actual money refers to the actual medium of exchange which is in circulation in a
country. It is the medium of exchange and means of payment. In India, various Rupee notes and the
Rupee coins are actual money or money proper.

Money of account is the money in which accounts are maintained. Prices of goods and services, debts,
general purchasing power, etc. are expressed in terms of money of account. Rupee in India, Mark in
Germany, Dollar in USA and Takka in Bangladesh are the examples of Money of accounts.

Legal Tender Money and Optional Money

(a) Legal tender money refers to that money which the state and the people accept as the means of
payment in discharge of debts. Legal tender money is enforced by law. No one can refuse to accept it as
a means of payment. Legal tender money may be of two types : (a) limited legal tender and (b) unlimited
legal tender. Limited legal tender money is accepted only upto a certain limit. For example, in India, the
small coins of 5, 10, 25 paise are legal tender money only upto a sum of Rs. 25. Unlimited legal tender
money is that money which has to be accepted as a medium of payment upto any amount. In India, 50
paise coins, one rupee coins and currency notes of all denominations are unlimited legal tender money.
(b) Optional money refers to that money which may or may not be accepted as a means of payment.
Optional money has no legal sanction. No one can be forced to accept optional money. Different credit
instruments, like, cheques, bank drafts, hundies, bill of exchange, treasury bills, insurance policies,
bonds, etc. are examples of optional money.

CHECK YOUR PROGRESS

A) Mention the different types of money.

CHARACTERISTICS OF MONEY

In this section we will briefly state the various characteristics of money. To perform its functions well,

money must possess the following characteristics.

1. General Acceptability : Money should be universally acceptable to all without any hesitation. Because
of the general acceptability of money, we can use it widely as a medium of exchange.
2. Divisibility : Divisibility is one of the important characteristics of money. Money must be easily divisible
into small parts to allow for the purchase of smaller units of the commodities.
3 . Homogeneity : Money must be homogeneous. The units of money should be identical. They should be
of equal quality.
4. Durability : Money must possess durability. It must be storable and sholud last for a long time without
losing its value.
5. Cognisability : Money must have the quality of cognisability i.e. it must be easily recognised.
6. Stability : The value of money should remain stable. Because it has to serve as a measure of value, as
a store of value, and as a standard of deferred payment.
7. Portability : Money must possess the portability characteristics. It should be easily carried or transferred
from one place to another.
It is important to note that all the above characteristics must be present in money at one and the same
time. If some of the characteristics are not present at one point of time it will not be money.

FUNCTIONS OF MONEY

After discussing different types of money let us now discuss the functions of money. Money performs a
variety of functions in modern economy. The various functions of money can be divided into three broad
groups :
(A) Primary functions
(i) Medium of Exchange and
(ii) Measure of value.
(B) Secondary functions
(i) Standard of deferred payments
(ii) Store of value and
(iii) Transfer of value
(C) Contingent functions
(i) Measurement of National Income
(ii) Distribution of National Income
(iii) Maximisation of Satisfaction
(iv) Basis of credit
(v) Liquidity to wealth
(vi) Productivity of capital.
A. PRIMARY FUNCTIONS : Primary functions are the functions which money has been performing since
old days. These functions are also called as fundamental functions of money. These are discussed
below :
(i) Medium of Exchange : The primary and unique function of money is to serve as a medium of exchange

or as a means of payment. To be a successful medium of exchange, it must be commonly accepted

(without any hesitation) by the people in exchange for goods and services. While performing the function
as medium of exchange, money benefits the society in many ways :
(a) It overcomes the difficulties of barter system.
(b) It promotes transational efficiency in exchange by facilitating the multiple exchange of goods and
services with minimum time and effort.
(c) It promotes allocation efficiency by facilitating specialisation in production and trade.
(d) It allows freedom of choice which helps a person to use his money to buy the things of his choice from
the people who offer him the best bargain opportunities.
(ii) Measure of Value : The second primary function of money is that it acts as a common measure of
value. In terms of money the value of all goods and services are measured and expressed. Money has
made transaction easy. It has simplified the problem of measuring and comparing the prices of goods and
services in the market. The value of a commodity expressed in terms of money is known as price. By
acting as a common measure, money has provided a language of economic communication.
Money also acts as a unit of account. In India, rupee is the unit of account.
By acting as a unit of account, it helps in developing an efficient accounting system because the value of
a variety of goods and services which are physically measured in different units (e.g. quintals, meters,
liters, etc.) can be added up. It provides a basis for keeping accounts, estimating national income,
estimating total money cost of a project, calculating profit and loss etc.

ACTIVITY

A. List out the unit of account of

USA .....................................................................................................
Russia .................................................................................................
Japan ..................................................................................................
Germany .............................................................................................
Bangladesh ..........................................................................................

B. SECONDARY FUNCTIONS :
Secondary functions of money are those functions which are derived from the primary functions of money.
These are discussed below :
(i) Standard of Deferred Payments :
Money also acts as a standard of deferred or future payments. In terms of money the deferred or future
payments are expressed. By acting as a medium of exchange, money not only helps current transactions,
but also facilitates credit transaction (i.e. exchanging present goods on credit) through its function as a
standard of deferred payments. It enables consumers to buy goods on credit and on hire purchase
system, helps businessmen to borrow from banks and other non banking financial institutions etc.
(ii) Store of Value : Money also serves as a store of value. People can hold their wealth in the form of

money. Money provides a liquid store of value because it is so easy to spend and so easy to store. By
serving as a store of value, money helps the individuals to meet unpredictable emergencies and to pay
debts that are fixed in terms of money. It also provides for exploiting attractive future buying opportunities.
You may know that it was Keynes, the British economist, who first fully realised the liquid store of value
function of money. He regarded money as a link between the present and the future. Money allows us to
store purchasing power which can be used at any time in future to purchase goods and services and any
other asset.
(iii) Transfer of Value : Money also acts as a means of transferring value. Through money, the value of
goods and services etc. can be easily and quickly transferred from one place to another because money
is acceptable everywhere and to all. For example, a person can easily transfer his money from Guwahati
to Delhi through bank draft rather than remitting the same value in commodity terms, say Rice.
(C) CONTINGENT FUNCTIONS :
Money also performs certain contingent or incidental functions which help various economic entities such
as consumers, producers, etc. in taking their economic decisions. These are stated below :
(i) Measurement of National Income
Money helps in the measurement of national income of a country. This is done by expressing the values
of various goods and services produced in a country in money terms.
(ii) Distribution of National Income : Money facilitates the distribution of national income among the people
of a country. Total output of the country is jointly produced by a large number of people as workers, land
owners, capitalists and entrepreneurs and this will have to be distributed among them. Money helps in the
distribution of national product in the form of wage, rent, interest and profit which are expressed in money
terms.
(iii) Maximisation of Satisfaction : Money helps the consumers and the producers to maximise their
satisfactions. A consumer maximises his satisfaction by equating the price of each commodity (expressed
in terms of money) with the marginal utility of the commodity. Similarly, a producer maximises his profit by
equating the marginal productivity of a factor unit to its price.
(iv) Basis of Credit :In modern economic system credit plays an important role and money constitutes the
basis of credit. People deposit their money (saving) in the banks and on the basis of these deposits, the
banks create credit.
(v) Liquidity to Wealth : Money imparts liquidity to various types of wealth. Various types of wealth such as
land, machinery, stocks, stores etc. can be liquid by converting it into money.
(vi) Productivity of Capital : Money increases the productivity of capital. Because money is the most liquid
type of capital, it can be put to any use. Due to liquidity of money the capital can be easily transferred to
more productive uses from less productive uses.

Advantages of Money: 8 Important Advantages of Money Explained!

Some of the advantages of money are as follows:

Money occupies a unique position in a modern capitalist economy. In its absence, the whole prosperous economic life would
collapse like a pack of cards.

The advantages or uses of money can be best understood by considering the system in which money is absent.

1. Money has overcome drawbacks of barter system. We have read drawbacks of barter system which make exchange process
burdensome and highly inefficient. In fact, money was invented by the society to overcome these drawbacks.

The barter system suffers from four main drawbacks, each of which is overcome by a specific function of
money as explained below:

(i) Money as medium of exchange solves the barters problem of lack of double coincidence of wants as money has separated
the acts of sale and purchase. You can sell goods for money to whosoever wants it and with this money you can buy goods from
whosoever wants to sell them.

Money is accepted as medium of exchange. People exchange goods and services through medium of money when they buy
goods or sell goods. Thus, money becoming intermediary solves barters problem of double coincidence of wants.

(ii) Money as measure (unit) of value or a unit of account solves the barters problem of absence of common measure (unit) of
value. Money serves as a unit of value or unit of account and acts as a yardstick to measures exchange value of all commodities.
The value of each good or service is expressed as price (i.e. money units) which guides both consumer and producer to make a
transaction. Thus money makes keeping of business account possible.

(iii) Money as store of value solves the barters problem of difficulty in storing wealth (or generalised purchasing power).
Moreover, money in convenient denominations (like Indian coins of 5, 10, 20, 50, 100 paise and currency notes of 2, 5, 10, 100,
500, and 1,000) solves the barters problem of absence or lack of divisibility. (Coins of less than 50 paise are no longer in use
now.)

(iv) Money as standard of deferred payments helps to solve the barter problem of lack of standard of deferred payment. Again,
it helps to make contracts which involve future payments. Doubtlessly money helps in removing the difficulties of barter
system.

2. It facilitates exchange of goods and services and helps in carrying on trade smoothly. The present highly complicated
economic system will not exist without money.

3. Money helps in maximising consumers satisfaction and producers profit. It helps and promotes saving.

4. Money promotes specialisation which increases productivity and efficiency.

5. It facilitates planning of both production and consumption.

6. Money can be utilised in reviving the economy from depression.

7. Money enables production to take place in advance of consumption.

8. It is the institution of money which has proved a valuable social instrument of promoting economic welfare. The whole
economic science is based on money; economic motives and activities are measured by money.

What are the Advantages and Disadvantages of Money?

Answered!
Article Shared by

Read this article to learn about Advantages and Disadvantages of Money!

Advantages of Money:
Paper money has got several advantages and disadvantages.
The following advantages can be mentioned:
(i) Economical:
Paper money practically costs nothing to the Government. Currency notes, therefore, are the cheapest
media of exchange. If a country uses paper money, it need not spend anything on the purchase of gold or
minting coins. The loss which a country suffers from the wear and tear of metallic money is also avoided.
(ii) Convenient:
Paper money is the most convenient form of money. A large amount can be carried conveniently in the
pocket without anybody knowing it. It is very risky to carry on ones person Rs. 5,000 in cash, but not in
notes. It possesses, in a very large measure, the quality of portability which a money material should have.
In a very small bulk, it can contain a very large value. Think of a currency note of Rs. 10,000.
(iii) Homogeneous:
One essential quality in money is that it must be exactly of the same type. Even among the coins there are
good and bad coins. But currency notes are all exactly similar. It is, therefore, a very suitable medium of
exchange.

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(iv) Stability:

The value of paper money can be kept stable by properly regulating its issue. That is why there are many
advocates of managed paper currency.
(v) Elasticity:
Paper money is absolutely elastic. Its quantity can be increased or decreased at the will of the currency
authority. Thus paper money can better meet the requirements of trade and industry.

ADVERTISEMENTS:

(vi) Cheap Remittance:

Money in the form of currency notes can be cheaply remitted from one place to another in an insured
cover.
(vii) Advantageous to Banks:
Paper money is of very great advantage to the banks. They can keep their cash reserves against liabilities in
this form, for currency notes are full legal tender.
(viii) Fiscal advantages to the Government of the paper currency are undoubtedly very great, especially in
times of national emergencies like a war. A modern war cannot be prosecuted by taxes or loans alone. All
governments have to resort to the printing press. In recent years in India there has been great inflation. We
must remember that by this means our Government has been able to spend hundreds of crores of rupees
on various ambitious programmes of development. Hence within limits the issue of paper money comes
very handy to the government at the time of dire need.
Disadvantages of Paper Money:
But we cannot overlook the disadvantages of money:
(i) Paper money is of no value outside the country of issue. Gold and silver coins are accepted even by
foreigners, as they have got some intrinsic value.
(ii) There is a possibility of the damage to paper. Fire may burn it; if the place is flooded, it is gone; it may
also be eaten up by white ants.

(iii) A serious drawback in paper currency is the ease with which it can be issued. There is always a danger
of its over-issue when the Government is in financial difficulties. The temptation is too great to be resisted.
Once this course is adopted, however, it gathers momentum and leads to further note-printing, and this
goes on till the paper currency loses all value. This happened in various countries in recent times: in Russia
(1917), in Germany (1919), in China (1944), and so on.
An over-issue of notes, in other words inflation, brings many evils in its train.
Some of them are:
(a) Prices rise steeply. As a result, labourers and people with fixed incomes suffer greatly. The whole public
feels the pinch.
(b) The indirect result of the excessive rise in prices is a fall in exports and a rise in imports. This leads to
the export of gold from the country, which is not a desirable thing. Its balance of payments becomes
unfavorable.
(c) The rise in prices also leads to a fall in the external value of the home currency. The rate of exchange
falls. More home money will have to be paid to buy units of foreign currencies.

Conclusion:
Really, paper money, if it is issued and regulated carefully, is without any disadvantage. All countries issue
paper currency, and, in normal times, they do not suffer from it in any manner. Only when it is over-issued,
it becomes a great danger and a curse. It may cause grave discontent among the masses. When paper
money is over-issued, there is inflation and prices rise. It hits hard several important sections of the people
like workers and fixed- encomiasts.
The people might lose confidence in the currency and it might become useless. Such a situation arose in
many European countries during and after World War I, and later more recently in China. It is remarkable
that Indian Government was able to control inflation, whereas even countries like the U.K. were unable to
check it

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banking system
Advantages

Credit Unions typically pay higher dividend rates on savings

Credit Unions typically offer lower rates on loans
Credit Unions typically provide better service; since they are owned and governed by their membership, they tend to prioritize the
needs of their members above all else
Credit Unions operate on a not-for-profit business model, so excess earnings are returned back to the membership in form of
competitive rates and lower fees, and sometimes even special dividends
Many Credit Unions offer the same products and services found at banks
Credit Unions often have added-value benefits, such as free financial education, discounted theme park tickets, and special member
rates for services such as home alarm systems...even discounts at online retailers like Barnes & Noble.

Disadvantages

Credit Unions, and in particular smaller local credit unions, struggle to match the level of convenience (ATMs and branches) that
many banks provide their customers, although many CUs are part of shared networks which enhance the breadth of delivery
channels available to their members
Some Credit Unions are limited in their product offerings
One must qualify for membership
One must pay a membership fee to join