1.3 The Types of Money
Does money always mean paper notes and coins? Lets understand this in this topic.
Money has taken different forms over time. From serving the basic daily transactional needs like buying groceries to satisfying complex wants like buying a car. Here, we look at the different types of money.
Different forms of money used.
As the name suggests, commodities were used as money, i.e., commodities were exchanged based on needs through the barter system. Common commodities used as money were beads, shells, spices, rice, etc. It was the earliest form of money.
Currency money consists of currency notes and coins, called legal tender, as it is backed by a promise to hold the value that is printed or imprinted on it. These fixed values are called denominations of the currency. The central bank of the country governs the supply of currency. In India, the Reserve Bank of India (RBI) is the central bank, and the official currency is the Indian Rupee. The currency money system is prevalent even today! That 100 Rupee note in your pocket is an example of currency money.
Have you seen your father carrying bank cards in his wallet? These are known as plastic money. Debit and credit cards are the best examples of plastic money. They eliminate the need to carry cash and allow you to make payments with just a swipe of your plastic card! With debit cards, money is immediately deducted from your bank account. Whereas, with credit cards, you can pay the money later by settling the monthly bill.
There are two forms of digital money. The first one is just a digital representation of the physical currency of money. Internet banking and wallet accounts like Paytm, Gpay, BHIM UPI are examples of this form. They allow us the convenience of making online payments. The other form of digital money is a cryptocurrency which central banks do not regulate. They are created and controlled by a network of decentralised entities that manage currency exchange during transactions. As they are decentralised, many countries’ central banks do not recognise their value and don’t consider the transactions legal. Currently, cryptocurrencies are at a nascent stage of development.
Only time will tell whether they will become a universally accepted form of money.
THINK ABOUT IT!
Have you ever made a payment through UPI? Which application did you use to send/ receive money?