3.2. MODERN FORMS OF MONEY

Money is a fascinating subject and full of curiosities. It is important to capture this element for the students. The history of money and how various forms were used at different times is an interesting story.

This part introduces the concept of money, highlighting its historical importance and complexity. It emphasizes that money has evolved through different forms and serves various purposes in society. Understanding its history can help students appreciate its significance in modern financial systems.

Think of money like a storybook that tells tales of trade and value throughout history. Just as a book shows how characters evolve, money has changed from coins and cattle to digital currencies over time.

Modern forms of money are linked to the banking system. This is the central idea of the first part of the chapter.

The text explains the connection between money and the banking system, asserting that modern money primarily consists of currency (like coins and notes) and deposits held in banks. The banking system plays a crucial role in regulating the flow of money in an economy.

Imagine the banking system as a gigantic water reservoir that stores and distributes water (money) through pipes (bank accounts) to different areas as needed. Just like water is essential for life, money is essential for economic growth.

In India, during November 2016, currency notes in the denomination of Rs. 500 and Rs. 1,000 were declared invalid. People were asked to surrender these notes to the bank by a specific period and receive new Rs. 500, Rs. 2,000 or other currency notes.

This section discusses a significant event in Indian banking history known as demonetisation. It explains how the Indian government invalidated certain currency notes to curb illegal activities and promote digital transactions. Students can understand its impact on the economy and daily life.

Think of it like a game where certain tokens suddenly become unusable, and players must trade them in for new tokens to keep playing. This required everyone to adapt quickly to new rules, similar to how people adjusted to using new forms of currency.

People were also encouraged to use their bank deposits rather than cash for transactions. Hence, digital transactions started by using bank-to-bank transfer through the internet or mobile phones.

This section highlights the shift towards digital financial transactions post-demonetisation in India. It explains how individuals began using bank transfers, mobile payments, and electronic systems instead of physical cash, illustrating a trend towards a cashless economy.

Consider how we use apps like PayPal or Google Pay to send money instantly to friends instead of handing over cash. This reflects a change in how we think about money, where digital solutions make transactions faster and more convenient.

Modern forms of money include currency — paper notes and coins. Unlike the things that were used as money earlier, modern currency is not made of precious metal such as gold, silver and copper.

In modern times, money is represented by fiat currency such as paper notes and coins, which have no intrinsic value themselves but are accepted because a government backs them. This is a departure from earlier forms which had inherent value.

Think of modern money like a movie ticket. The ticket itself is just paper and not worth much, but it allows you to see a movie because the theater values it. Similarly, currency allows us to buy goods and services even if it doesn't hold any material value.

The other form in which people hold money is as deposits with banks. At a point of time, people need only some currency for their day-to-day needs.

This segment explains that people often keep their extra money in bank deposits rather than in cash. Banks offer safe storage and even a small interest on these deposits, allowing for easy access to funds when necessary.

Think of bank deposits like a piggy bank. You save your extra cash there, and while it's secure, the bank gives you a little reward (interest) for letting it hold your money. When you need to buy something, you just crack it open (withdraw).

A shoe manufacturer, M. Salim has to make a payment to the leather supplier and writes a cheque for a specific amount. This means that the shoe manufacturer instructs his bank to pay this amount to the leather supplier.

This section describes how cheques function as a form of modern payment, allowing individuals to make transactions without using physical cash. It explains that a cheque acts as an instruction to the bank to transfer funds, facilitating safer transactions.

Imagine writing a note to a friend asking them to give someone else money on your behalf. A cheque works similarly, where you tell your bank to transfer your money to another person's account, making it a secure way to pay without needing cash.

Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities.

This part explains the fundamental role that banks play in the economy. They not only hold deposits but also lend money to individuals and businesses, which stimulates economic activity and helps people achieve their financial goals.

Think of a library that lends out books. Just like a library collects books (deposits) from people to lend to others, banks collect money from depositors and lend it to borrowers, which keeps the community informed and growing.

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