Modern Forms Of Money

• Money is something that can act as a medium of exchange in transactions.
• Before the introduction of coins, a variety of objects was used as money.
• For example, since the very early ages, Indians used grains and cattle as money.
• Thereafter came the use metallic coins – gold, silver, copper coins – a phase which continued well into the last century.

WHY CURRENCY IS ACCEPTED AS A MEDIUM OF EXCHANGE?

• It is accepted as a medium of exchange because the currency is authorized by the government of the country.
• The law legalizes the use of rupee as a medium of payment that cannot be refused in settling transactions in India. No individual in India can legally refuse a payment made in rupees.

MONETARY SYSTEM ADOPTED BY INDIA:

• India has adopted paper currency standard which is also referred as the managed currency standard.
• The monetary standard means the types of standard money used and the standard refers to legal money in which the government discharges its obligations. The monetary standard is thus synonymous with the standard money adopted. Thus in India paper currency is the unlimited legal tender i.e., it is used to settle debts and make payments to an unlimited amount.
• Reserve Bank of India issues all currency notes and coins except one rupee notes and coins which are issued by ministry of finance.
• The system governing note issue is the minimum reserve system which means that we have kept a reserve of 200 crore and the Central Bank is permitted to issue notes to any extent.

DEPOSITS WITH BANKS:

• The other form in which people hold money is as deposits with banks.
• At a point of time, people need only some currency for their day-to-day needs.
• The extra cash available with the people is deposited in the bank account in their names.
• Banks accept the deposits and also pay an interest rate on the deposits.
• In this way people’s money is safe with the banks and it earns an interest.
• People also have the provision to withdraw the money as and when they require.
• Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits.
• Demand deposits offer another interesting facility. It is this facility which lends it the essential characteristics of money (that of a medium of exchange).

CHEQUE AND ITS ADVANTAGES:

Demand deposits offer another interesting facility. Any person who has an account with the bank can make his payments through cheques. A cheque is a paper instructing the bank to pay a specific amount from the person's account to the person in whose name the cheque has been made.

HSBE Cheque

• It is the safest mode of transactions.
• It is easy to carry a cheque as compare to money.
• The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash.

Credit card

ROLE THE BANKS PLAY IN THE ECONOMY OF A COUNTRY:

The banks play an important role in the economy of a country

• They keep the money of the people in safe custody otherwise people can become an easy prey of thieves or robber.
• They give interest on the money deposited by the people. Thus they add to the income of the depositor. Many families survive on the bank interest.
• The banks mediate between those who have surplus money and those who need money.
• Banks provide cheap loans to a large number of people.
• Banks promote agriculture by providing loans to the farmers who can increase their production by bringing new farm implements and make better arrangements for the irrigation of their fields without which they cannot survive.
• The banks are the backbone of the country's trade also.
• Banks employ a large number of people and as such they solve the employment problem also.

CENTRAL BANK:

Banks boost the country's industry also by providing cheap loans to the industrialists etc.

Is an apex institution in the banking and financial structure of a country. It plays a leading role in controlling, regulating, supervising and developing the banking and financial structure of the economy.

Function of a central bank

• It issues the currency notes
• It acts as a banker to the government.
• Central bank acts as a banker of banks.
• Central bank also functions as the custodian of foreign exchange reserve of a country.
• It controls credit.
• It also performs developmental and promotional functions.
• It maintains relation with the international organizations such as the World Bank, IMF, etc.
• It conducts research studies and surveys and publishes reports.
• It formulates an appropriate monetary policy for the country.
• it provides training facilities to the staff working in a various banking institutions in the country.

COMMERCIAL BANKS:

A banking company is one which transacts the business of banking which means accepting deposits for the purpose of Indian companies lending or investment, deposits of money from the public, repayable on demand or otherwise withdrawable by cheque, draft etc. Commercial banks are also called joint stock banks because they are organized in the same manner as joint stock companies.

Main features of commercial banks are:

• It deals with money; it accepts deposits and advances loans.
• It also deals with credit. It has the power to create credit.
• It is a commercial institution, whose aim is to earn profit.
• It is a unique financial institution that creates demand.
• It deals with the general public.