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Plastic Money and E – Money

1. Lack of double coincidence of wants, 

2. Common measure of value 

3. Indivisibility of commodities 

4. Difficulties of storing wealth

To overcome the difficulties of barter system, money was invented.

Following are the two characteristics of money :

1. It has the quality of universal acceptance.
2. It is the most liquid form of property.

(i) Money has made the process of exchange very easy and purchase of goods and f services very easy.
(ii) Money has made the determination of value of commodities easy.

Value of money is more stable in comparison to other commodities.

Money is the most simple method of exchange in an economy. Therefore, all the transactions in a market system are made with the help of money.

Following are the two secondary functions of money :

1. Store of Value – Money has made it possible to store value for future use. One can make savings in form of money and also earn interest on these savings. He can fulfil his future needs through his savings.
2. Basis of Future Payment – Money has made future payments possible, because the value of money has more stability. In present time, all the enchanges are done on credit. How much and when are these credit payments to be made is decided by money.

Money is considered an important invention because it has made the process of exchange very easy.

Capacity of changing any commodity or property into money without any loss in its value is called liquidity of money.

The functions which help in execution of primary functions of money, are called r secondary or auxiliary functions.

Moneta is a Latin word.

(c) Developed Society

According to Hartley Withers. “Money is that commodity through which we sell and purchase goods.”

M₃ = M₁ + Net time deposits with commercial banks.

There is a stability and certainty in money due to which saving is made easy.

By the quality of liquidity, money can be used anywhere and at any time without , any hurdle.

Following are the measures adopted by RBI for supply of money:

1. M₁ = C + DD + OD
2. M₂ = M₁ + Post office and bank saving account deposits.
3. M₃ = M₂ + Net term deposits with commercial banks
4. M₄ = M₃ + Total post office savings deposits

Here DD = Demand deposits with commercial and cooperative banks
C = Currency notes and coins with people
OD = Other deposits with RBI.

Goddess Juno was worshipped as the goddess of heaven in ancient Rome. Coins were minted in the temple of goddess Juno.

There is no universally-accepted definition of money. Economics have defined it in various ways, i.e. According to Hartley withers, Money is that thing by which we buy and sell things”. Kinley defined money differently. He said, “Money is a commodity which is generally used and accepted as a medium of exchange or as a measure of value.”

With the multiplicity of wants and greater need for exchange, barter system proved to be an inefficient system of exchange, and ultimately this system was abolished from the society because of the many problems which arose in its practice.

In ancient time, various states were ruled by kings and emperors. They used to mint coins according to their own ways. Exchange processes were carried out through the medium of these coins. These coins were made of various metals, like, gold, silver, copper and bronze. These coins were granted legality by the state and it was a legal necessity to accept them. From time to time, changes were made in their forms.

It is a process through which the central bank of a country seizes legality of currency in circulation to oust black money and fake currency, and issues new currency.

The English word ‘Money’ has been derived from the word ‘Moneta’ of Latin language. Moneta is another name of Roman Goddess Juno. In ancient times, coins were minted in the temple of goddess Juno, therefore currency was named as money. Money was defined by different economists differently. Hence, money has no single universally accepted definition. 

Following are the different definitions of money :

1. According to Hartley Withers, “Money is that commodity through which we sell and purchase goods”.
2. According to Knapp, “Anything which is declared by the state as money, becomes money”.
3. According to Marshall, “Money includes all those commodities which are generally accepted without investigation and doubt for purchase and sale of goods and services at a specific place and at a specific time.”
4. According to Seligman, “Money is one thing that possesses general acceptability”.
5. According to Kinley, “Money is such commodity which is generally used and accepted as a medium of exchange and measure of value.”
6. According to FA. Walker, “Money is the thing that is used as a currency”.
7. According to Kent, “Money is the thing, that is used as a medium of exchange or accepted as a measure of amount”.

It is clear from the above definitions, that economists are not of a common view’ on defining money* but this too is evident that the thing called money should possess the quality of functioning as money, universal acceptance and statutory mandate. 

Thus, a correct definition could be the following –

“Money is such a thing which has legal and general acceptance in form of medium of exchange, measure of value, storage of value and payment mode of loans.”

Importance of Money – Money has a vital place in present-day economic realm. Prof. Marshall, clarifying its importance, has said, “Money is that pivot around which economic science revolves.” In present age, operation of economy cannot be imagined without money. Because of this importance, the present age is called the age of money. 

We may understand the importance of money from the following points :

(i) Basis of market system – Money has made the market system convenient and dynamic. Money is the most simple method of exchange in an economy. Therefore, all transactions in a market system are done with the help of money.

(ii) Measure of economic development – Money is an index of measurement of economic development of a country. Governments have been able to formulate and implement programmes of economic development because of money only. The comparison of economic growth of various countries has also become possible because of money.

(iii) Basis of Investment – The circulation of money has made savings possible. Today, people save some money from their present income in order to fulfil their future needs, and earn interest by depositing their saved amount in banks and other financial institutions. Such large amounts thus collected in financial institutions, is invested by them in industries. Private investors also directly invest money in industrial units. In this way, savings become a basis for investment.

(iv) Division of labour and specialisation – In present age, large-scale production is done, which reduces the cost of production of goods. This has become possible only due to division of labour and specialisation. Division of labour and specialisation is not possible without money.

(v) Freedom of decision in economic field – Producers and consumers both are free in the market to take rational decisions due to the use of money. Where consumers spend their money in such a way as to ensure maximum utility, the producers spend wisely on various means of production, so as to maximise their production at least cost.

(vi) Basis of social prestige – In the society, along with economic freedom, money also provides the facility of storage of value which becomes the basis of social prestige. The person with more money has more prestige in the economy.

This definition was given by economist Seligman.

Following are the reasons of barter system’s popularity in ancient time :

1. Wants of people were limited.
2. Market area was limited.
3. Society was in a very undeveloped state.

When money ceases to be legal tender due to government order, the people holding unaccounted money are not able to exchange or deposit such money into bank. Then such money becomes mere bits of paper.

There are four measures adopted by RBI in supply of money – M₁, M₂, M₃ and M₄.

“Anything which is declared by the state as money, becomes money”.

Double coincidence of wants is a core characteristic of the barter system of exchange. Double coincidence of wants implies that, the two individuals are in possession of such goods, which they are willing to exchange for the satisfaction of their wants.

Moneyless economy has all the drawbacks of Barter system.

Following are the two drawbacks of barter system :

1. Problem of double coincidence of wants.
2. Difficulty in measuring the value of goods.