Money and Its Role: Definition, Functions and New Forms of Money

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Definition of Money

  • Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, in a particular country or socio-economic context.

  • Money in a particular country is issued by centralized authority. This is basically, central bank of that country. Money is in the form of coins and paper currency. China started paper currency first in the world. Later on, Sweden issued European Bank notes.

  • Currency of India is called Indian Rupee (Official Currency) with symbol #. and code: INR. New rupee symbol was designed by D. Uday Kumar and it was started circulation on 8th July 2011.

Every country has its own currency. Currencies of some famous countries:

(a) Currency in USA in called dollar with symbol $.

(b) The European currency is called euro having symbol €.

(c) Currency in United Kingdom is called pound having symbol £.

(d) In Japan the currency is called Yen having symbol Ұ.

Money Supply in India

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  • In India, Reserve Bank of India will monitor the supply of money and it has specialized mechanism to print and mint the money.

  • Government of India has the only right to mint the coins and one rupee note. These coins are minted at Mumbai, Alipore, Saifabad & Cherlapally and Noida. The coins are issued for circulation only through the Reserve Bank in terms of RBI Act.

  • Currency notes are printed by printing presses. In India there are 4 currency printing presses. 2 presses at Nashik and Dewas owned by central government and the other two owned by RBI which are located at Mysore and Salboni.

  • RBI issues currency notes in the denomination of 1,2, 5, 10, 20, 50, 100, 500 and 1000, and it has that right to issue notes of denomination up to rupees 10000.

  • RBI governor will sign all denomination currency notes except one rupee note, which is signed by finance minister.

  • RBI will print the money basing on Minimum Reserves System (RBI can issue currency of value equal to 200 cr. reserves. Out of which, 115 cr in gold and 85 cr in for-ex reserves).

Functions of Money

  • Primary function is that it acts as a medium of exchange. We can purchase any good or service we want by paying money.

  • It serves as unit of account or common measure of value. Value of any good or service is measured in terms of money.

  • Act as Standard of deferred payment. Lending and borrowing are done basing on money. The borrower needs to pay debt along with interest in terms of money.

  • Act as a store of value – It can be saved, stored and retrieved.

  • Money is accepted within the own country. If they want to trade with other countries, they exchange money at foreign exchange rate. (Exchange rate of one currency is different with different countries. The rate at which the currency is exchanged is called foreign exchange rate with that particular country).

  • Making Payments in Future

New Forms of Money

  • In earlier days money is only in the form of paper currency and coins. But with the help of technology money can be available in many forms we call it as digital currency. Digital currency is the currency used for any kind of monetary transactions in place of physical (liquid) currency.

  • Digital currencies include Virtual Currencies and Crypto Currencies. Ethereum, Ripple and Bitcoin are some examples for Crypto currencies.

Advantages of Money

  • It acts as a common medium of exchange

  • It accepted throughout the country.

  • It is centrally authorized currency.

  • It builds confidence in people so that they can use it for transactions.

Challenges with Money

  • Problem of Fake Money Circulation – Money printing and minting should be done in confidential manner. The system of printing and minting should not be able to copy.

  • Printing of Physical Money incurs huge costs to government. They have to be bear by country citizens.

  • Printing of money need more metal resources and plants.

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