Money and its Types

By Dr Vipan Goyal
 Money
• Anything which has general acceptance as means of payment.
• Functions of Money:-
 Medium of Exchange
 Common measure of value
 Standard for deferred payments
 Store of wealth
 Money

• Barter System – A commodity is exchanged for other

commodities.
 Types of Money
• Full-bodied money: It is the type of money whose value as money
is equivalent to its value as commodity. E.g. – Gold coin
• Token Money/Credit Money/Paper Money: Value as money is
much more than the value as commodity. E.g. – Paper Currency
• Representative full-bodied money: It is a kind of token money but
is issued against the backing of equivalent value of bullion (gold and
silver in bulk) with the issuing authority
 Types of Money
• Gresham’s Law – Bad money drives out good money. It is primarily used
for consideration and application in currency markets.
• Gresham’s law was originally based on the composition of minted coins
and the value of the precious metals used in them.
• Legal Tender Money – This money cannot be denied in the settlement of
monetary obligation
 Types of Money
• Non Legal Tender Money – There is no legal compulsion to accept this
money. It is also called optional money or Fiduciary Money (on the basis of
trust). E.g. – Nepalese currency
• Fiat Money – Serves as money on the order of the government. The value
of fiat money is derived from the relationship between supply and
demand and the stability of the issuing government, rather than the worth
of a commodity backing it. Most modern paper currencies are fiat
currencies.
• Near Money – Highly liquid financial assets like shares and bonds
 Currency and their symbol
• ₹ 10 Sun Temple, Konark, Odisha. 13th Century Narsimhadev-I
• ₹ 20 motif of the Ellora Caves on the reverse, depicting the country's
cultural heritage, dimension of the new Rs 20 note will be 63 mm x 129
mm , Buddhist, Hindu and Jain monuments in Aurangabad, Maharashtra
• ₹ 50 Hampi Chariot from Vithala Temple, Karnataka
• ₹ 100 Lavender color. Rani ki Vav on Saraswati river, Patan.
• ₹ 200 Sanchi Stupa, Madhya Pradesh.
• ₹ 500 Red Fort, Delhi by Shah Jahan.
• ₹ 2000 Mangal Yaan / Mars Orbiter Mission, 2013
• New rupee symbol - ₹: through competition by Dept of Eco. Affairs in
2010.Designed by D. UdayaKumar (Associate Professor at IIT Guwahati)
 Currency and their symbol
• Nation Symbol – Lion Emblem: Sarnath Pillar, Uttar Pradesh.
• - “Satyamev Jayate”: Mundaka Upanishad
• Languages While 8th Schedule has 22 languages, but currency note
has only 17 (15)
 Cheque
• Three parties in a cheque:
• 1) Drawer (Sender),
• 2) Drawee (Bank),
• 3) Payee (Recipient)
• THREE Types of cheques:
• 1) Stale: Not withdrawn in 3 months,
• 2) Post-dated: After a specific date,
• 3) Anti-Dated: Before a specific date.
• Open / bearer cheque: No ‘crossing’. Anyone can encash.
• Outstation Cheque: collection charges outside home branch.
• IFSC code: Indian financial system code- 11 alphanumeric numbers
to identify the bank branch.
• MICR code: Magnetic Ink Character Recognition.
• 9 digits code written in Iron Oxide ink for automated clearance.
• NPCI’s CTS-2010: Cheque Truncation System- scanned image of
cheque sent to the drawee branch for faster clearance without theft
or tempering. MICR readers NOT required.
• Demand Draft: can’t be dishonored because amount is prepaid.
• Over Draft: When person’s bank balance goes zero, still he’s allow
to draw money (as a loan).
• CBS- Core Banking Solution: It’s a banking software with web-
platform for centralized data management & branchless banking.
• NPCI ( National Payments Corporation of India): It is a “Not for
Profit Company” 10 promoter banks with 100 crore capital to
provide cost-effective payment solutions for banks (in 2008).
• BHIM (2016) Bharat Interface for Money
• - It works on android, ioS/Apple mobile phones as an APP, and even
on non-smart (basic) phones using *99# USSD- Unstructured
Supplementary Service Data.
• Bank to bank / peer to peer transaction using mobile phone
(xyz@upi).
• No need to install multiple apps for each bank account.
• Just one BHIM app to use all such bank accounts.
• Your money stays in bank account and earns interest.
• It’s not stored in ‘wallet outside bank’, like PayTM.
• No cards involved so no merchant discount rate or such hidden charges.
• Sweden has “Swish” app to make their country 100% cashless by 2020.

• The merchant discount rate is the rate charged to a merchant for payment
processing services on debit and credit card transactions.
 Crypto-currency & Blockchain Technology
• Cryptocurrency: a digital currency in which encryption techniques
are used to regulate the generation of units of currency and verify
the transfer of funds, operating independently of a central bank.
• Blockchain: A secured decentralized database that maintains a
continuously growing list of records/transactions.
• Old entries can’t be deleted, new entries will be visible to all.
• Mainly used for running cryptocurrency network.
 MONEY SUPPLY
• Money Supply is the total stock of all types money (currency +
deposit money) held with public
• Public refers to everybody except Banks and Government
• Types of bank deposits
 Current Account
 Fixed deposit
 Recurring deposit account
 MONEY SUPPLY
• Demand Deposits (DD) – Can be withdrawn on demand from banks.
• Current Account and Saving Accounts are known as Demand Deposits.
• Time Deposits (TD) – Can be withdrawn only after a specific time.
• Fixed Deposits and Recurring Deposits are known as Time Deposits.
• M1 = Currency held by the public + Demand Deposits with Banks + Other
deposits (Demand Deposits held by RBI)
• M1 is known as narrow money as it includes only 100% liquid deposits which
is a very narrow definition of money supply.
• M2 includes M1 and only saving account deposits with Post offices.
 MONEY SUPPLY
• M3 = M1 + Time Deposits with Banks (Broad Money)
• Time Deposits Includes fixed deposits, Recurring deposits and time liability
of Savings accounts
• M4 = M3 + Total Deposits with Post Office
• As the total deposits with post office is negligible there is not much
difference between M3 and M4
• The most common measure used for money supply is M3
 MONEY SUPPLY
• Current accounts cannot be opened in Post Offices
• Types of accounts that can be opened are:-
 Savings account
 Fixed Deposit
 Recurring deposit
• Government had appointed a committee for revising the measures of
Money Supply
• Committee was known as working group for the revision of Monetary
Aggregates. The Chairman of the committee was Mr Y.V. Reddy
 High Power Money/Reserve
Money/Primary Money
• It is denoted by H or M0
• In simple terms it is currency held by public and banks
• It is called reserve money as banks have to keep reserves with RBI and this
is the reserve money
• It is known as primary money as currency is called primary money and
deposit is called secondary money. H includes currency only.
 Monetary System in India
• In India currency is printed as per the provisions of Minimum
Reserve System.
• RBI has to maintain reserves of 200 crore in the form of
 Gold - has to be at least 115 crore
 Foreign Securities. - No minimum requirement
• RBI can print unlimited currency against the backing of Gold,
Foreign Securities and Government Securities
• Government borrows from RBI due to Deficit Financing
 Foreign Securities
• Foreign Securities are any kind of financial assets. In India we
maintain four currencies as Foreign Securities. These are:-
 USA Dollar
 UK Pound
 Japanese Yen
 Euro
 China Yuan
 Paper Gold IMF
 Reserve Bank of India
• RBI is the Central Bank of the Country
• RBI was Established in 1 April 1935 under (RBI ACT 1934)
• Government Established RBI Recommendation of Hilton Young
Committee (1926)
• RBI was Nationalized on 1 January 1949
• Governor is the Head of RBI
• Financial of RBI is 1st July to 30th June
 Reserve Bank of India
• 25th Governor: Shaktikanta Das
• Member of 15th Finance Commission). He replaced Urjit Patel
(2018-Dec).
• RBI Act (Section 8) provides for “NOT MORE than 4” Dy. Governors
viz.
 1. B.P. Kanungo: from RBI officer cadre.
 2. N. S. Vishwanathan: from RBI officer cadre.
 3. Mahesh Kumar Jain: Appointed by appointment committee
 Reserve Bank of India
 4. Dr. Viral V. Acharya: Appointed by appointment committee.
also, Ex-officio Member of Monetary Policy Committee.
• Their tenure usually 3 years. Re-appointment Possible.
• They’re selected by Financial sector regulatory appointment search
committee (FSRASC) headed by the Cabinet Secretary (IAS).
RBI Offices & Departments
RBI 4 regions

Northern: Delhi

Eastern: Kolkata

Southern: Chennai

Western: Mumbai
 Functions of RBI
• It is the only currency authority in India.
• It is the Government’s Bank
• All financial transactions of the government are undertaken through
the RBI
• It is Bankers Bank – Commercial banks have to keep reserves in RBI
and RBI lends money to banks
• RBI is known as lender of the Last Resort
 Functions of RBI
• It provides clearing house facility to banks – settlements of claims
of one bank on other banks is done by RBI by the means of
following facilities:-
 NEFT (National Electronic Funds Transfer)
 RTGS (Real Time Gross Settlement System)
• Supervisor of Banks and Non-banking finance institutions
• Custodian of Foreign Exchange reserves
• RBI’s RTGS: Real Time Gross Settlement
• Real time / Instant Settlement
• Transfer minimum 2 lakh to Rs. 2000 crores (SBI).
• Meant for corporates and high value transactions,Only in working hours and Service fee
&GST applicable
• RBI’s NEFT:
• Delayed / Batch Settlement
• National Electronic Funds Transfer
• Transfer upto Rs.10 lakhs (SBI).
• The system currently provides for batch settlements at half-hourly intervals during its
operating hours - from 8 am to 7 pm on all working days and Service fee + GST applicable
• IMPS: Immediate Payment Service (IMPS) is an instant payment inter-bank
electronic funds transfer system in India.
• 24x7 via mobile,internet.
• Min. Rs.1 to 2 lakhs
• While RTGS/NEFT require IFSC code so can be offered only by BANKS, but
IMPS can be offered by Banks as well as Prepaid Payment Instruments (PPI) /
mobile-wallet companies such as Phone pe, Mobikwik etc.
• UPI 1.0 (2016)
• It’s a technology for building digital payment apps based on IMPS with
following features:
• QR/ Quick Response Scan & Pay to merchants.
• You can link Current Account (CA) Savings Account (SA) for direct transfer
of money without storing in ‘wallet’ first. (unlike PayTM)
• Such app can have Push transaction (e.g. Remittance to family), Pull
Transaction (e.g. monthly bill deduction by DTH) or even Bill sharing
among friends.
• Examples of UPI based app: SBI’s SBIBuddy, Axis Bank’s AxisPay and NPCi’s
own BHIM.
• UPI 2.0 (2018 Aug)
• Upgraded version with following features:
• Overdraft Account linked [until now only CA,SA]
• Cash on Delivery, User mandate for future date e.g. DTH / Gym.
• Invoice in the inbox.
• QR authenticity – whether merchant verified or not?
• BharatQR (2016)
• While PayTM QR code will not work with Phonepe app (interoperability issue),
the BharatQR Quick Response code works with all UPI based bank apps and
BHIM app.
• RuPay (2016)
• Rupee + Payment = RuPay card is world’s 7th payment gateway similar to
Mastercard, Visacard, China’s Union Pay- but at less service charges.
• Works in 3 channels: ATM, PoS, Online.
• Used by banks, railway and even dairies.
• Rupay debit card comes free with PMJDY (Jan Dhan) account.
 Currency Issuance
• Lower Denominations values of `1 and less are printed by the
Finance Ministry, Government of India
• RBI issues Currency notes signed by Governor.
• Presently Rs.10 to Rs. 2,000. Under RBI Act.
 SCHEDULED BANKS
• When RBI is satisfied that a bank has (Paid Up Capital + Reserves) =
Min 5 Lakhs & it is not conducting business in a manner harmful to
its depositors
• Such bank is listed in the second Schedule of RBI Act, and known as
a Scheduled Bank.
Thank You