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Economics-2 Money Evolution

money evolution

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The evolution of money is something we all are aware of but at the same time it is interesting too. We are going to learn so many economics terms in this evolution but all are going to be a piece of cake when it comes to understanding them.

1. So evolution of money started with the first type of money i.e. commodity money.  Here the public accepted a use of single commodity like the teeth of animals, iron rod,a hen, metallic necklace or anything in which they are comfortable with and agree to trade. Here the money is solving the problem of medium of exchange as they have found and decided something as money. Apart from that, commodity money has a certain intrinsic value attached to them by way of their value or use.

Having commodity money is okay for those who are in the same town or same area where the money have both the importance and usage but when it came to foreign trade the traders usually denied accepting the commodity money as foreigners may not assign the same value for a commodity like the natives. This problem of the commodity money lead the way for new type of evolution in money, i.e. Metallic Money.

2. Metallic Money- This money type had come-over all the problems of the commodity money, For instance-

  • It has intrinsic value. Intrinsic value means the actual value of the commodity leaving aside the face value. For example, the solid 5rs coin has metal worth 7rs than its intrinsic value is 7rs worth.
  • an universal appeal
  • non-perishable in nature
  • fungible.
  • foreign trade is valuable
  • production is low, price remains stable; Hyperinflation is not possible. Hyperinflation is a situation  when there is excess supply of currency in the market therefore resulting in inflation.

There are certain problems too attached with the metallic money-

  • Shortage of metal to encourage a optimum flow of money.
  • Metallic money used to be heavy. At the time of Akbar- 20 grams copper coins were introduced. But Aurangzeb introduced 13 grams copper coins. This shrink in metal coins is called debasement.
  • Metallic money get shrinks in ship in voyage.

Apart from this, the public used to hoard the money which in valuable or better than the present introduced money. This is called Thomas Gresham’s Law, “bad money drives out good money.”

Due to the above problems the money journeys to another evolution which is named as Paper money,

3. Paper Money- This evolution holds many changes of money in term of legality. This is because in this evolution step, the intrinsic value is set to be much lesser than the face value. Also to have the universal appeal attached to it, new legal currency is introduced by every country prevailing inside the country borders and this lead to introduction of  new economic terms  namely-

  • Fiat moneyA money is said to be fiat when it is in form of coin, currency or virtual currency and it is issued by the king/queen/government/central bank of the country.
  • Representative MoneyWhen the currency promises the holder to get the face value worth of commodity from the central bank or an other authority of the nation, in exchange of the currency than that currency is called representative money.
  • Legal tenders A money type becomes a legal tender of the nation when it is a fiat money and it is allowed to perform all sought of trade with that money type and it can’t be refused withing the boundary of the nation. Usually sedition case is applicable for not accepting the legal tender.
  • Commemorative Money– Sometimes, government introduces currency printed in different styles of print to honour some person or achievement. So that money is fiat money but it can’t be said a legal tender unless the proper authority notifies it to be.

There are 4 places in India where the currency is printed. These places are called ‘mint’, and they are at-

  1.  Maharashtra- Mumbai
  2. Telangana- Hyderabad (Saifabad and Chelapally)
  3. Utter Pradesh- Noida
  4. West Bengal- Kolkata (Alipore)

Coinage Act of 1906 allowed government of India to print coins up-to 1000Rs. Also it also allowed to issue 1rs Currency Notes by the government which is signed by the Finance Secretary. 


RBI under RBI Act 1934 was allowed to print currency notes above the denomination of 1rs, which should be signed by the RBI Governor. These were later called the bank notes.


FACTS

  1. Coins are called limited legal tender because only settlement up to 1000rs can be made above that the trader can refuse to accept.
  2. Currency Notes are called unlimited legal tender but after the Finance Act of 2017 not more than 2lacs rs transaction is allowed by way of currency notes.This is done to make the public adopt the digital payment by way of NEFT,RTGS, etc and promote cashless economy. The penalty for default will be the whole amount above 2lacs rs.
  3. The minimum denomination coin acceptable for transaction is 50 paisa coin.

 

Go to the first part of economics by clicking here

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Written by Doe Joye

Doe Joye is a Pen name for a final year graduating student interest in tech and personal development.
Preaparing for government exams and improving n sharing his changing english and awareness experience.

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