Money has had several incarnations. These have varied over time and
space. A study of the evolution of money, the related circumstances,
the working of various monetary standards is fascinating. But we resist
the temptation and restrict ourselves to the present. At present in
India money consists of coins, paper currency, and deposit money.
are an example of metallic money. They are not full- bodied, but only
token money, because the intrinsic (metallic) value of token coins is
less than their face value. Currency notes are merely pieces of paper
that have no intrinsic value of their own. They are not convertible into
anything of value at a fixed rate. The issuing authority does not stand
ready to buy them back against gold or silver or full-bodied gold or
silver coins of equal value at a pre-determined price.
paper currency is inconvertible. The legend carried on the face of a
Reserve Bank of India (RBI) currency note of (say) ten rupees that ‘I
promise to pay the bearer the sum of ten rupees’ (signed by the
Governor, the RBI) is a carry-over from the past when currency notes
were convertible into full-bodied silver rupees. Now it simply means
that notes can be converted into other notes or token coins of equal
Deposit money is not like coins-or currency notes that can
be passed on from hand to hand for a transfer of purchasing power.
Deposits are only entries in the ledgers of banks to the credit of their
holders. We are treating only demand deposits of banks on which cheques
can be drawn as money.
The cheques are an instrument through
which these deposits can be transferred from the payer to the payee.
Only when the ownership of these deposits has been so transferred is the
medium-of-exchange or the means-of-payment function of these deposits.