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Regulatory BodyMoney – Evolution and Function
In economics, hoarding is the practice of buying and storing a large amount of a product or asset with the intention of selling it at a higher price in the future.
In a double coincidence of wants, both parties agree to sell and buy each other’s goods. For example, if Person A has rice and needs shoes, and Person B has shoes and needs rice, they can exchange their goods without money. However, heir comes a stalemate when one party wants something not desired by the other
Fungible items are those which where mutual substitution possible e.g. Gold bars, Currency Notes & Coins. However goods traded under the barter may not be equivalent.
The intrinsic value of a coin is the value of the materials it’s made of, or its commodity value
Face value is the value written on the coin
If the face value of money is equal to its value as a commodity, it is called full bodied money. If a gold coin of face value Rs. 100/- contains gold worth of Rs. 100/- it will be called full bodied money or sometimes standard money
Silver punch-marked coins
Tang dynasty adopted an early prototype of paper currency starting with promissory notes in Sichuan
The term flying money came from the fact that it had a tendency to blow away in the wind.
Marco Polo
A bill of exchange is a written order binding one party to pay a fixed sum of money to another party on demand or at a predetermined date.
Muhammad bin Tughlaq was the second sultan of the Tughlaq dynasty (Ruled from 1325–1351)
tanka
lesser
Riksens Ständers Bank, established in Sweden.
1668
Fiat money is a currency that is issued by a government and is not backed by a physical commodity, such as gold or silver. Instead, the value of fiat money is determined by the government’s authority and the relationship between supply and demand. Fiat Money Must Fulfill 2 Simultaneous Conditions –
➹ It MUST BE in the form of Physical Currency Coin / Physical Currency Notes / VirtualCoin/ DigitalCoin/ CryptoCoin which can measure value AND simultaneously और साथ ही साथ
➹ It MUST BE issued by the order of a King / Queen / Government / Central Bank.
1971
Barclays
Japan in the 2000s
As per Section 6 of coinage Act it is a legal Tender as a coin of any denomination not lower than one rupee, for any sum not exceeding one thousand rupees will be a legal Tender. However, it will be foolish as they are mostly made up of Silver and costs much higher than their face value.
Evolution of Money Timeline
Barter System
In early human societies, people exchanged goods and services directly without a standardized medium of exchange. This Barter System had Many advantages
➹ Simplest form of exchange: no headache of foreign exchange rates and associated problems
➹ Less chances of overproduction, hoarding , profiteering etc less chances of inflation
➹ Difficult to concentrate wealth= Less inequality of income
➹ Barter system also promoted personal contact among individuals
However , this Barter System also had many problems Like –
➹ Double co-incidence of wants
➹ Search Cost/high transaction cost: transaction cost as everyone will have to waste time and energy to find another party
➹ Doesn’t encourage specialization and division of labour
➹ Divisibility & Fungibility problems:
➹ Perishability: Goods are perishable with Time
Commodity Money
Various items with intrinsic value e such as cattle, or shells, were used as money in different cultures. These commodities were widely accepted as a medium of exchange. Commodity money evolved from bartering systems, where participants accepted a common medium of exchange.
Metal Coins
The first standardized metal coins were created by the Kingdom of Lydia (modern-day Turkey). These coins were made from electrum, a naturally occurring alloy of gold and silver. However their intrinsic value is greater to the face value of the engraving on the currency. Today In India, coins are made from various metals, depending on their denomination. However the Coins are full bodied coins. The first coins in Indian history are believed to be, which date back to around the 6th century BCE .
Paper Money
China introduced the world’s first paper money during the Dynasty This paper currency helped reduce the need for carrying heavy metal coins. The paper currency was known as flying money . It was who Introduced Europeans to the concept of paper money
Banking System & Bills of Exchange
Bayt al-Mal, known as the public treasury of Islamic state, was established by the Prophet and then it was further extended and expanded by Abu Bakr and Umar. It was a system of regular stipends for soldiers and officials. Islamic banks developed sophisticated financial instruments, including the use of bills of exchange , which were early forms of checks.
Token Money
In Medieval India, Tughluq issued copper currency called as token money called whose value was legally set equal to silver coin, and is considered the world’s first truly token currency. Token money, or token, is a form of money that has a intrinsic value compared to its face value. While the experiment was revolutionary but it failed due to non Standarization.
Central Bank
The first central bank in the world was, established in Sweden in.The Bank of Great Britain in England was another early central bank in the world. It issued banknotes that became widely accepted as a form of money.
Fiat Currency
The use of fiat money in the West began in the 18th century, when the American colonies, France, and the Continental Congress issued bills of credit.
Gold Standard
Many countries adopted the gold standard, where the value of their currency was tied to a specific amount of gold. This system provided stability but limited monetary flexibility as per the history of money. Note : As Master of the Royal Mint in England, it was Newton implemented the gold standard in 1717, stabilizing currency values.
Bretton Woods System
After World War II, the Bretton Woods Conference established a new international monetary system, where currencies were pegged to the U.S. dollar, which was convertible to gold. This system was finaly ended by President Richard Nixon in when he announced the suspension of the U.S. dollar’s convertibility to gold, effectively ending the gold standard and transitioning to a system of fiat currencies.
Electronic Payment System
On June 27, 1967, bank in Enfield, north London, opened the world’s first automated teller machine (ATM) and the first payment card.
Mobile Payment System
Mobile payments began adoption in and later all over the world in different ways. The first patent exclusively defined “Mobile Payment System” was filed in 2000. Although the concept of using non-coin-based currency systems has a long history, it is only in the 21st century that the technology to support such systems i.e. Mobile computers has become widely available.
Cryptocurrencies
Bitcoin, created by an anonymous person or group known as Satoshi Nakamoto, was introduced in 2009. It marked the beginning of cryptocurrencies, which are decentralized and based on blockchain technology.
Digital Wallet
Mobile payments began adoption in and later all over the world in different ways. The first patent exclusively defined “Mobile Payment System” was filed in 2000. Although the concept of using non-coin-based currency systems has a long history, it is only in the 21st century that the technology to support such systems i.e. Mobile computers has become widely available.
Forms of Money in Circulation
Cheque : A cheque is a document in writing specifying an unconditional order, addressed to a banker, signed by the person who has deposited money with the banker requiring them to pay on demand a certain sum of money only to or to the order of a certain person or to the bearer of the cheque. A cheque may be regarded as a bill of exchange, as such, it is also called a negotiable instrument.
There are 3 Parties Involved in a Cheque –
1) Drawer (who writes/ draws the cheque)
2) Payee (whose order the cheque is drawn for), and
3) Drawee (the bank which has the drawer’s operating account from which the cheque amount is to be paid)
Apart from these three, there are two more parties involved with a cheque –
4) Endorser: When a party i.e. payee transfers his right to take the payment to another party, he/she is called endorser.
5) Endorsee: The party in whose favour, the right is transferred, is called endorsee.
Terms Related to cheque are shown on the infographic. Key: ▭
Cheque
IFSC Code
Indian Financial System Code- 11 alphanumeric numbers to identify the bank branch, just like PINCODE identifies an area.
Drawer Account
The person who writes the cheque and holds the bank account from which the funds will be withdrawn is known as the “drawer.”
Payee
The individual, organization, or entity to whom the payment is being made is referred to as the “payee.” The payee’s name is typically written on the cheque.
Amount
The numerical and written amount of money to be paid is specified on the cheque. The written amount is important in case there is a discrepancy between the two.
Cheque Number
Cheque number is usually six digit number at the bottom left side of the cheque and is unique for each cheque.
MICR Code
Magnetic Ink Character Recognition. 9 digits code written in Iron Oxide ink for automated clearance.
RBI Account Number
The third block of Six digits on a cheque is the account number maintained by the Reserve Bank of India (RBI)
Transaction ID
The last two digits at the bottom of a cheque are the transaction ID. It helps to know whether the cheque issued is a local or payable at par
Types of Cheques:
➹ Bearer Cheque : The bearer cheque is a type of cheque in which the bearer is authorised to get the cheque encashed. This means the person who carries the cheque to the bank has the authority to ask the bank for encashment.
➹ Order Cheque: This type of cheque cannot be endorsed, i.e., only the payee, whose name has been mentioned in the cheque is liable to get cash for that amount. The drawer needs to strike the “OR BEARER” mark as mentioned on the cheque so that the cheque can only be encashed to the payee.
➹ Crossed Cheque: In this type of cheque, no cash withdrawal can be done. The amount can only be transferred from the drawer’s account to the payee’s account. Any third party can visit the bank to submit the cheque.
➹ Mutilated Cheque: If a cheque reaches the bank in a torn condition, it is called a mutilated cheque, the bank shall reject the cheque and declare it invalid, until the drawer confirms its validation.
➹ Stale Cheque : In India, any cheque is valid only until 3 months from the date of issue. So if a payee moves to the bank to get withdrawal for a cheque which was signed 3 months ago, the cheque shall be declared a stale cheque.
➹ Post-dated: If a drawer wants the payee to apply for withdrawal or transfer of money after the present date, then he/she can fill a post dated cheque.
➹ Anti-Dated: A Cheque in which the drawer mentions the date earlier than the date of presenting it for payment is called an ante-dated cheque
➹ Traveller’s Cheque: As the name suggests, the Traveler’s cheque can be used when a person is travelling abroad where the Indian currency is not used.
➹ Blank Cheque When a cheque only has a drawer’s signature and all the other fields are left empty, then such a type of a cheque is called a blank cheque.