Functions and forms of money

Why money came

There is a saying that necessity is the mother of invention. As people exchanged more kinds of goods, and over longer distances, barter could not keep up, and a common medium of exchange became necessary. That is how money was born, and as its use for buying and selling spread, it became the accepted way of paying.

Four functions of money

Money does four jobs. It is a medium of exchange, accepted by everyone, so no one has to find a person who wants exactly what they have. It is a store of value: a farmer who sells his ox for money can keep the money and buy things later, whereas wheat would rot. It is a common measure of value, a common denomination, since prices let us compare the worth of goods and services. And it is a standard of deferred payment: if a book costs ₹100 and you have only ₹50, the shopkeeper may agree to let you pay the rest later, because both of you know exactly how much is owed.

Money keeps moving

Money passes from hand to hand. Parents pay shopkeepers for the products they buy; shopkeepers pay salaries to their workers; and the workers use the same money to buy everyday essentials and pay their children’s school fees. One person’s spending becomes another person’s income.

The journey of money

Fig. 11.10 gives a broad timeline for India: barter from about 6000 BCE, cowrie shells from about 1000 BCE, metal coins of iron, silver, gold and copper from about 600 BCE, official paper money in 1861, debit and credit cards from 1980, and UPI in 2016. At every step money became lighter, easier to carry and quicker to use. Early coins were issued by rulers, and India’s first coins are described in coins of ancient India.

Paper money

When coins were used for everything, from vegetables to land, carrying and storing large numbers of them became a problem. Paper money, first used in China, solved it, and it reached India in the late 18th century; early examples include one-sided (uniface) notes of the Bank of Bengal and a ten-rupee note of the Bank of Bombay. Today the Reserve Bank of India controls the issue of currency, and no one else may legally issue it. Coins serve the smaller denominations and notes the larger ones.

Notes are designed to be hard to copy, with a watermark, a security thread, colour-changing ink and other features, and they carry raised marks that help visually impaired people identify them. Their backs show India’s heritage: in the current series, Hampi’s stone chariot is on the ₹50 note and Rani ki Vav, the stepwell at Patan, is on the ₹100 note.

Digital money

Money has also taken forms we cannot touch. Krishnappa sells seasonal fruit from a cart that displays a small card with a QR code; customers scan it with their phones and pay, and the money goes straight into his bank account. Such digital money exists in electronic form. Debit cards, credit cards, net banking and UPI (Unified Payments Interface) all move money directly from one person’s bank account to another’s.

Why it matters

Knowing what money does helps us use it well: to save, compare prices and pay on time, and to choose sensibly between cash and digital payments. Barter, which money replaced, is in the barter system. Answers to every question are in the NCERT solutions for Chapter 11; see also the full Chapter 11 notes.