Economics

Modern forms of money :
(i) It includes currency - papernotes - coins and deposits with the bank.
(ii) Traditional forms of money included silver, gold & copper.
Money is used as a medium of exchange because :
1. It is authorised by the government of the country.
2. Its demand and supply can be controlled by the central Bank of the country. In case of India the Reserve Bank of India issues currency notes on half of the central government.
3. In India the law legalises the use of rupee as a medium of payment that can not be refused in settling transactions in India No Individual can legally refuse a payment made in rupees.
4. Value of each good or services is measured in the monetary unit.
Monetary system adopted by India :
1. India has adopted paper currency standard which is also referred as the managed currency standard.
2. The monetary standard means the types of standard money used and the standard refers to legal money in which the government discharges its obligations. The monetary standard is thus synonymous with the standard money adopted. Thus in India paper currency is the unlimited legal tender i.e., it is used to settle debts and make payments to an unlimited amount.
3. Reserve Bank of India issues all currency notes and coins expect one rupee notes and coins which are issued by Ministry of Finance.
4. The system governing note issue is the minimum reserve system which means that we have kept a reserve of 200 crore and the Central Bank is permitted to issue notes to any extent.
Deposits with Banks :
People who have extra money can deposit it with the banks by opening a bank account in their name. Banks accept the deposits and also pay an interest rate on the deposits. In this way peoples money is safe with the banks and earns an interest.
Demand Deposits :
People also have the provision to withdraw the money as and when they required. Since the deposits in the bank accounts can be withdrawn on demand these deposits are called demand deposits.
Advantages of depositing money in the bank :
1. It is a safer place to keep money as compared to the house or a working place.
2. People can earn interest on the deposited money.
3. People have the provisions to withdraw the money as and when they require.
4. People can also make payments through cheques.
Cheque :
Any person who has an account with the bank can make his Payments through cheque.
It is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been made.
Advantages :
1. It is the safest mode of transaction.
2. It is easy to carry a cheque as compared to money.