commodities that have been used as mediums of exchange include gold, silver, copper, rice, salt, peppercorns, large stones, decorated belts, shells, alcohol, cigarettes, cannabis, candy, etc.Bank deposits include three kind of deposits - Current account ,Saving account,Fixed deposits.
The first "rupee" is believed to have been introduced by Sher Shah Suri (1486–1545), based on a ratio of 40 copper pieces (paisa) per rupee. The rupee, derived from the Sanskrit word raupya, which means silver, was a silver coin. In 1861, the Government of India introduced its first paper money.The Reserve Bank of India began note production in 1938, issuing 2, 5, 10, 50, 100, 1000 and 10000 rupee notes.
Medium of exchange:- It acts as a medium of exchange and has solved the problem of Barter Exchange.Measure of Value:-All values of good and services been exchnagesare measured in terms of money. This function of money makes transactions easy and also fair.Store of Value:- Goods cannot be stored because they are perishable. However, money can be stored in the form of savings in banks. It is readily accepted and is an easily transported store of value.Money as a standard of Deferred Payments:- means borrow today and repay towmrow. one necessary conditionis that the value returned after a time gap should be the same.This function stimulates all kinds of economic activities which depend on borrowed money.
Money can be anything, which can begenerally accepted by everyone andeverywhere for anything and everything.
• There is no universally agreeable definitions of Money.But, Money can be defined as any commodity that is generally accepted as a medium of exchange and a measure of value.
In the earlier days, people used the system known as barter system.Barter means exchange of a good or service for another good orservice.People who had specific items or services to sell would exchangethem with others for the things they needed. E.g.:- Fish for a Wheat.But, this system couldn’t last long due to the varied needs and wants and due tothe difficulty in measuring the value for the goods or services been exchanged,which lead to the Conceptual introduction of the term Money….Evolution ofCommodity Money.
Commodity Money Metallic Coins Paper Money Bank deposits Money Credit Card used as ainstrument/medium of money.
The first Rupee was released by SherShah Suri, Known as Rupiya in 1540-1545 Coins of the Mughal EmpireCE, One Rupee-Sher Mohur-Humayun Shah Suri(Afghan) Mohur-AkbarBritish Indian 1rupee, 1917 Mohur-AurangzebPortuguese Indian 1 rupee, 1924 Mohur-FarrukhsiyarFrench Indian 1 rupee (1938)
EAST INDIA COMPANY RUPEES IN A.D 1840 Coin 1st Paper currency A.D1840
Currency in British Raj Gold Mohur issued duringIssued in 1865 coronation of Queen Victoria 50th Anniversary.
1’ST R. B. I ISSUED NOTESINR 10000 NOTE ISSUED IN 1935 INR 5000 ISSUED IN 1935
Post Independent Indian currency noteIssued in 2000 Issued 1950
“Money is a matter of functions four, A medium, a measure, a standard & store.”Money as a Medium of exchange.Money as a Measure of Value.Money as a Store of Value.Money as a Standard of deferred payments.
THE SIGNIFICANCE OF MONEY IN MODERN ECONOMYELIMINATES PROBLEM OF BARTER SYSTEM Double coincidence of wants How to measure value of 2 different product ? What is generally accepted medium of exchange ?FACTOR OF PRODUCTIONSLand ,Labour , Capital and Entrepreneurship.ACCLERATES THE PACE OF PRODUCTION AND GROWTHBy making payment quick and efficient.By making sales quick.LIFE BLOOD OF MODERN ECONOMY Circulation of money can be compare with blood in human bodyOTHER POINTSHelpful for money market & Credit systemHelpful for consumer for his choice
RBI •HIGH POWER MONEYCOMMERCIAL BANK •CREDIT MONEYNBFI •MONEY SUPPLY
Supply of money is the total amount of money in circulation in a given countryseconomy at a given time.The Central Bank of a country - i. e in India (RBI, Reserve Bank of India) is the mainsource of money supply in the country.‘A high power money’ - Money supplied by Central Bank. The RBI uses the following measure of the high power money supply. H = C+R+OD. Where, C = Currency held by the public, R = Cash reserve of the commercial banks, and OD = Other Deposits with RBI.‘Credit Money’ - Money created by Commerical banks in the process ofborrowing and lending.‘Non-Banking Financial Institutions’ (NBFIs) .
In India we have four measures of money supply, generally known as MonetaryAggregates.The Reserve Bank of India defines the monetary aggregates as:•M1 (Narrow Money): Currency with the public + Deposit money of the public(Demand deposits with the banking system + ‘Other’ deposits with the RBI).•M2: M1 + Savings deposits with Post office savings banks.•M3 (Broad Money): M1+ Time deposits with the banking system = Net bankcredit to the Government + Bank credit to the commercial sector + Net foreignexchange assets of the banking sector + Government’s currency liabilities to thepublic – Net non-monetary liabilities of the banking sector (Other than TimeDeposits).•M4: M3 + All deposits with post office savings banks (excluding NationalSavings Certificates).
Currency with public = Notes in circulation + circulation of rupee coins +circulation of small coins - cash on hand with banks.Currency in circulation = Currency with public + currency (vault cash) withcommercial banks and co-operative banks.Demand deposits = current deposits with commercial and co-operative banks+ demand liabilities portion ofsavings deposits with banking system.(excluding inter bank deposit)Time deposits = term deposits with all commercial and co-operative banks(excluding inter-bank deposits) + time liability portion of savings bankdeposits .Total Post office deposits = Post Office savings deposits + other deposits withRBIOther deposits with RBI = deposits of quasi-government (local bodies),balances in the accounts of foreign central banks and governments, accountsof international agencies, profits of RBI held temporarily under the depositspending transfer to the Central Government.Post office deposits lost their importance. Hence M2 and M4 not considereduseful .
No. 11: Sources of Money Stock (M3) (Rs.crore) Source Reporting Fridays of the Month/Last Reporting Friday of the Month February 12,2010 February 26,2010 1 11 121. Net Bank Credit to Government (A+B) 15,70,234 15,87,882A. RBI’s net credit to Government (i-ii) 1,17,441 1,51,876(i) Claims on Government (a+b) 1,25,384 1,61,814(a) Central Government (1) 1,24,578 1,60,747(b) State Governments 806 1,067(ii) Government deposits with RBI (a+b) 7,943 9,938(a) Central Government 7,837 7,959(b) State Governments 105 1,979B. Other Banks’ Credit to Government 14,52,793 14,36,0062. Bank Credit to Commercial Sector (A+B) 33,02,035 33,36,084A. RBI’s credit to commercial sector (2) 4,906 4,713B. Other banks’ credit to commercial sector (i+ii+iii) 32,97,129 33,31,371(i) Bank credit by commercial banks 30,51,676 30,89,323(ii) Bank credit by co-operative banks 2,27,203 2,22,597(iii) Investments by commercial andco-operative banks in other securities 18,250 19,4513. Net Foreign Exchange Assets of Banking Sector (A+B) 13,16,870 13,06,868A. RBI’s net foreign exchange assets (i-ii)(3) 12,68,187 12,58,185(i) Gross foreign assets 12,68,205 12,58,203(ii) Foreign liabilities 17 17B. Other banks’ net foreign exchange assets 48,683 48,6834. Government’s Currency Liabilities to the Public 10,731 10,7315. Banking Sector’s net Non-monetary Liabilities Other than Time Deposits (A+B) 8,41,053 8,24,602A. Net non-monetary liabilities of RBI(3) 3,48,742 3,39,704B. Net non-monetary liabilities of other banks(residual) 4,92,311 4,84,898M3 (1+2+3+4-5) 53,58,818 54,16,963
Quantity Theory of Money FISHER’S CAMBRID GE KEYNESIANTHEORY OF VERSION THEORY OF MONEY MONEY MV=PT MD=KPQ
KEYNESIAN THEORY OF MONEYAccording to Keynes, money is demanded for three motives. The transaction Demand for money The precautionary Demand for money The speculative Demand for money