Money and It's Supply| CBSE

WHAT IS MONEY?

It refers to such an instrument which is commonly acceptable as a medium of exchange. Such instrument has General Purchasing Power for any Goods and Services.

OR

Money is what money does.

BARTER SYSTEM

It refers to that system in which goods are exchanged for goods, without the usage of money.

Also known as C-C Economy.

Drawbacks of Barter system

1. Lack of Double Coincidence of Wants – Double Coincidence of wants implies that, two individual are in possession of such goods which they are willing to exchange for satisfaction of their wants. Accordingly, under Barter System, exchange remained extremely limited. With the emergence of Money, the problem of coincidence of wants has vanished.

2. Lack of Common Unit of Value –  Under Barter System, there was no such common unit of value for goods and services. If a person want to sale his\her car then it would be valued in terms of horses, grains, etc. there was no money. Evolution of money has given us common unit of value and therefore, system of accounting.

3. Difficulty in Future Payments –  Future Payments would certainly be very difficult under Barter System. Evolution of money has facilitated future payments.

4.Difficulty in Storage of Value & Transfer of Value –  Now a days, We can easily able to store money. But, in C-C Economy, saving is possible only by storage of goods which involves risk and fear of loss. Evolution of money has made storage & transfer of value much easier.

Have You Read?

Credit Creation By Money

 Features Of Money

1.Medium Of Exchange –  

Money acts as a medium for Sale and purchase of goods and services. In absence of money, Goods

were exchanged for goods. Therefore, it was difficult to exchange goods and hence, unlimited. The

nature of production activity has also changed, because production is now done for the market: no for

self- consumption. The level of production has substantially risen with the introduction of money,

because the acts of sale and purchase have been separated.

2. Unit Of Value – Money Serves as a unit of account. Unit of account means the value of each goods is

measured in monetary value. Measurement of Value was very difficult in Barter System : one good was

valued in terms of other. There was no common unit of value.

3. Standard Of Deferred Payments – Deferred Payments refer to those payments which are made in the

future. Money has made deferred payments much easier than before.

This function of money has led to emergence of ‘Financial Market”- the market that offers funds for

investment as well as purchase of consumer durable. Availability of funds through financial market has

led to multiple increase in consumption as well as investment expenditure.

4. Storage Of Value – Storage Of Value implies storage of wealth. Storing wealth has become

considerably easy with introduction of money. But, it was not convenient to store value in

 Barter system of exchange. Because, Goods tends to perish.

5. Transfer Of Value – Money serve as a convenient mode of transfer of value. It is the transfer of value,

which led to emergence of MNC’s. Accordingly, concept of global economy come into existence.

Types Of Money:

A)     Fiat and Fiduciary Money:

Fiat money refers to that money which is issued by the government and acceptable as a common

medium of exchange. E.g.- Notes of Rs.100, Rs.500, Rs.2,000.

Fiduciary Money refers to that instrument which is acceptable as medium of exchange because of

mutual trust between two parties. E.g.- Cheques, Drafts.

B)      Full Bodied and Credit Money:

Full Bodied Money refers to that money in which material value is equal to money value. E.g.- One

rupee Coin at the time of Independence.

Credit Money refers to that money in which money value is much more than commodity /material

value. E.g.- The material value of metal that the rupee coins is made of in India is much lower than the

money value of the coin.

Money Value of Money Vs. Commodity Value of Money –

Money Value of money refers to the value which is inscribed on a coin or written on a paper note. Thus,

money value of paper note is what is written on it ,i.e., 500 Rupee Note.

Commodity Value of money refers to value of  the commodity like metal, that the money is made of.

Thus, if coins are made up of gold or silver , thus commodity value of money refers to the market value

of gold or silver contained in the coin.

 Functions Of money:

A)     Static function- It refers to conventional functions of money. These basically include primary and secondary functions of money : medium of exchange , measure of value, store of value, transfer of value and standard of deferred payments. Performing these functions , money helps in regulating the economic system.

B)      Dynamic Function- It refers to those  functions of money which impart (i) stability to the economy, (ii) accelerate the pace of growth and development.

 

Money Is A Dynamic Factor. How?

a)      led to the growth of exchange to infinite limits. Implying  expansion of markets and aggregate demand.

b)      led to growth of financial market. These markets are source of funds for Investment as well as consumption expenditure.

c)       led to flow of capital from one place to other.

Evolution of Money:

Money went through a long evolution before moving to Banking System with convenience of Plastic

Money we use today.

Barter System

Gold and Silver Coins

Coins of Alloy

Paper Money by Britishers

Plastic Money

Cryptocurrency is a digital asset designed to work as a medium of exchange.

This has been done because of growing population and demand of the economy.

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