Definition of money

As mentioned above, in general usage, the term money means currency used and coins held as cash in hand or chequeable deposits with banks. In economics, however the term money is used in a much wider sense and is defined differently by different economists. There is no universally agreeable definition of money. As Walters has remarked, “Throughout the history to be present day there is no agreement on the most fundamental questions- what is money?” the definition of money is rather a controversial issue. Conceptually money can be defined as any commodity that is generally accepted as medium of exchange and a measure of value. Historically, many commodities have performed these functions of money, and forms of money have been changing from cattle to credit cards. Therefore, an empirical question arises as to what should be and what should not be included in the actual count of money. This remains an unsettled issue. A major factor that complicates the task of defining money is the increasing number of money substitutes in the form of asset that can be converted into spendable money with different degrees of convertibility. Although currency remains the most liquid form of asset followed by bank deposits, many other forms of money have emerged over time.

Another factor that has added to the controversy is the divergence between the conceptual and the empirical definitions of money. As a result, the concept of money has changed from a measurable quantity.          

THE KINDS OF MONEY

Gone are the days of commodity money. Today, all the countries- developed, developing, less developed and backward- use modern monetary system with metallic coins and paper currency in circulation. Another important kind of money is bank deposit. The latest addition to the monetary system is credit card. Credit card work as means of payments without the use of the cheque system, in this section, however, we will discuss only the major kinds of modern money in circulation.

I. Metallic Coins: Metallic coins made of copper, iron, silver and gold- and now made also of alloys and aluminium- are the second important source of money in circulation today- first being the paper money. The invention and introduction of metallic coins must have been necessitated by the defects of commodity money- heterogeneity or non heterogeneity of money units, non durability, perishability, non portability, unstable value and indivisibility. The exact year or period of introduction of metallic coins is not known. “The first coins are believed to have been made in ancient Lydia on the Aegian Sea during the seventh century BC.” It is believed that metallic coins were in circulation in India about 2500 years ago. The metallic coins are believed to have been first minted and introduced by the private bankers and gold smiths, the sahukars who used to certify passage of time, the monetary system was taken over by the government or the government authorities with a view to making coins uniform and giving them a legal status. This gave the currency a general acceptability and also a legal status. Except silver and gold coins, however other metallic coins were and are only token money- a token money has no intrinsic value. In India, the metallic coins in circulation include rupee coins of 1, 2 and 5 rupee denominations and paisa coins of 1, 5, 10, 20, 50 paisa denominations.

2. Paper money: the paper money consists of the currency notes printed authentical and issued by the government and central bank of the country. Government of India and currency notes of higher denominations- rupees 2 ,5, 10, 20, 50, 100, 500 and 1000- are issued by the Reserve Bank of India (RBI). Each currency note issued by the RBI bears a promise by the RBI Governor-“I PROMISE TO PAY THE BEARER A SUM OF … RUPEES”.

3. Bank deposits: The third form of common money is bank deposit. Bank deposits include three kinds of deposits: current account deposits, saving bank deposits and time deposits. Current account deposits used as medium of exchange through cheque, However the Chicago approach treats saving and time deposits as close a substitute for cash and demand deposits. 

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