Forms of Money

FORMS OF MONEY

1. forms of money By: BHANU PRATAP SINGH

2. index Introduction F orms of money. Metallic Money Paper Money Bank Money Legal Money Plastic Money Near Money 2

3. INTRODUCTION Money may be defined as anything which is generally acceptable as a medium of exchange and at the same time acts as a measure, store of value and standard of deferred payment. Money can be in various forms, such as notes, coins, credit and debit cards, and bank checks. Traditionally, economists considered four main functions of money, which are Medium of exchange, Measure of value Standard of deferred payment Store of value 3

4. There are many forms of money. Following are the main forms of money. Metallic Money Paper Money Bank Money Legal Money Plastic Money Near Money 4

5. Metallic money Metallic money are the money which are issued by the central bank of a country in form of metals that acts as an unlimited legal tender in the economy. Metallic money is that money whose value of money (face-value) is greater than the commodity value (intrinsic value) of money. ie ;  metallic coin includes 1,2 & 5 rupee coin etc.  There are two types of metallic money. They are: Standard money/ Full Bodied Coins : Standard metallic money refers to the metallic money which is made up of pure and superior metals like gold and silver. This type of metallic money has the face value just equal to the intrinsic value(commodity value).  Token Money : When the face value of a coin is greater than the value of the metal it contains, it is called token money. One rupee coin is an example of token money. If it is melted, its metal will not be worth one rupee.

6. Paper money Paper money are the money which are issued by the central bank of a country in form of paper that acts as an unlimited legal tender in the economy. The paper money can be classified into following types: Representative Money : Representative money is that money which is fully backed by equal metallic reserve. The holder of a bank note can easily get it converted into metallic (gold & silver) form on demand Convertible Money : It is the form of money which can be converted into gold, silver i.e. metallic reserves. But all these notes issued by the government are not fully backed by gold. The amount of gold kept by the government is a particular proportion of the notes issued. Inconvertible/Fiat Money : Inconvertible or fiat money is one that we have in our pocket and use in daily business. The face value of such money is more than the value of the paper. e.g. the value of the paper of 100 rupee note is almost nil but its purchasing power is equal to Rs.100. it has this value because it has been declared as legal money by the government, so it is generally accepted as a medium of exchange.

7. Bank Money This is the most modern form of money this money is also called credit. It only consists of cheques, bill of exchange and drafts. Cheques: A cheque can be defined as a document that orders a bank to pay a particular fund amount from an individual’s account to another individual’s account in whose name the cheque has been issued. Bills of Exchange: A bill of exchange is defined as “an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument”. Draft: Draft is a cheque drawn by a bank on its own branch or the branches of another bank requesting it to pay on demand a specific amount to a person named on it.

8. Legal Tender Money The money that a person accepts as a means of payment and in discharge of debt is called legal tender notice. All the notes and coins issued by the govt. and the central bank are legal tender money. Legal tender money is of two types: A) Limited Legal Tender Money It is that money which no person can be forced to accept beyond a certain maximum limit fixed by law. For instance in India, coins are limited legal tender. B) Un-limited Legal Tender Money It is the money which a person has to accept up to any limit. There is no limit to quantity of money offered in payment. For example in India, paper notes are unlimited legal tender because all currency notes can be used to settle payments of unlimited value. Non legal tender money Bank money is the form of cheques, bills of exchange, a promissory notes is not legal tender money. Robertson says it “optional money”. So non legal tender money is money which a person may or may not accept as a mean of payment.

9. Plastic Money Plastic money refers to the hard plastic cards we use every day in place of actual bank notes. For example ATM cards like credit card and debit card are electronic generated card that acts as plastic money at the time of buying of goods and services. Near Money Near money is a  term  in financial economics, describing highly liquid non-cash assets that are easily convertible into cash. Also, near-money can be called quasi-money or  cash  equivalents. The proximity of near-money is important to determine the degree of liquidity. D eposit certificates (CDs), foreign currencies, money  market  accounts, marketable securities, and Treasury bills are examples of near-money assets.

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