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.

Coins 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.

Thus, all 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 value.

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.

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