Money and Credit
Introduction
This chapter deals with the evolution of money over the years and its functions. It also elucidates on the role of the Reserve Bank of India. It throws light on Foreign Exchange, monetary aggregates and forms of credit. It further explains how technological advancements have made banking easy and swift in today's world.
Almost all things used by man have a monetary value. In addition to that, the pay given for labour, wages and services are all fixed on the basis of money. The taxes and duties are also paid in the form of money. We would have seen our parents planning the expenses at our home every month. The monthly income, pending expenditure, savings, payment of interest etc., are all measured in terms of money.
Not only at homes, but also the budgets of a country or states are also framed on the basis of money. The Government, as well as, private institutions and industries calculate their financial status through money. Thus, moneyplays a predominant and inseparable role in all our lives.
Barter System
If there arises a question, "Has man always used money?", the answer would be 'no. How? when did money enter into the lives of men? In this lesson, let us learn about the evolution of money over the years.
Ancient man hunted and gathered food. He lived in caves and forests. In later stages, he invented weapons for hunting and gathering food. Later, he invented fire and learnt to practise agriculture. He used mud to build houses and settle down in a place. and also to make earthenware.
When the agricultural yield was high, they made handicrafts. When there was surplus in agricultural produce and other articles like earthenware, they exchanged it with people who needed them. For example, if a community had excess food stuff, they would exchange that with those who had excess pots. Likewise, when a particular grain grew in abundance in a region, it was exchanged for a different crop in another region. These articles which were exchanged through barter system can be termed as the first form of trade.
Coins
The barter system flourished wherever civilizations thrived. This system was active not only within a civilization, but also among civilizations. This was the initial form of international trade.
During archaeological excavations in Egypt and Iraq (Mesopotamia), articles used during the Indus valley civilization were excavated.As years went by, there were issues found in barter system. For example there were problems in the exchanging needed goods. A person who had paddy was in need of earthenware for instance. But, the person who had pots and other utensils was not in need of paddy. Thus, the needs of many people were not fulfilled. Measuring the quantity and value of the goods exchanged were found very difficult.
To solve these issues, they fixed a common item with a standard value, for the effective exchange of goods. It was usually in the form of some metal. Metals were rare to find and could be maintained for a long time and never lost their value. Hence, the metals can be termed as the first form of money.These may be the reasons why metals were chosen. Gold, silver and copper were the metals used first. They were called ancient currency. Leather, beads, shells, tobacco, salt, corn and even slaves were exchanged as barter, says economists.
The later Cholas allowed the traders to have their own army. Historical evidences state that during this period, small traders and producers gave credit to the Tamil traders to support their export needs.
Natural Money
The metals such as silver and gold gained importance gradually all over the world. So, these metals were used as standard value in the exchange of goods. This was called as natural money.
Paper Money
As days went by, issues arose because while trade prospered, there were insufficient reserves of gold and silver. Mines also had a limited reserve of these metals. An alternative was found and coins were made using metals with lesser value. These were used to buy and sell goods of lesser value. It was used as the money of the poor people.
Hence these coins were printed in large numbers. Paper money came into being as the next stage. This money was without form and people started saving in banks. The Great Economic Depression was also prompted the saving habit of the people.
Money has become an inseparable part of everyone's life today. It has changed its form in the economic front. Money transactions are done through many ways in the electronic world