Editing and layout by: Vasudha Mukherjee ❖

Ambedkar University, Delhi ✥ ECONOMIC SOCIETY ✥ OCTOBER 2013

ISSUE N. 13.01 ✥ The Rupee Issue ✥

The Eco Echo @AUDContributors: Aditi Umapathy; Ashmit Gautam; Kritigya

Dhanda; Manik Goyal; Nishchaya Nigam

!e importance of Money flows from it being a LINK between " Present and " FUTURE

- John Maynard Keynes

Types of Money - Manik Goyal

MONEY:

Money can be

described as a

token or a payment

option which is

used in our society

to settle debts and

to pay for the

services and

commodities which

are provided to us.

In other words,

money is the

medium of

exchange in our

society which has

also been accepted

by the law. Money

plays a pivotal role

in a country's

economy.

There are 4 major types of money :•Commodity Money•Fiat Money•Fiduciary Money•Commercial Bank Money

Commodity MoneyIt is the simplest kind of money which is used in barter system

where the valuable resources fulfill the functions of money. The value of this kind of money comes from

the value of resource used for the purpose. It is only limited by the

scarcity of the resources. Value of this kind of money involves the parties associated with the

exchange process. These money have intrinsic value.

Whenever any commodity is used for the exchange purpose,

the commodity becomes equivalent to

the money and is called commodity money. There are

certain types of commodity, which are used as the

commodity money. Among these, there are several precious metals like gold, silver, copper and many more. Again, in many parts of the world, seashells (also known

as cowrie shells), tobacco and many other items were in

use as a type of money & medium of exchange.

Ex : gold coins , beads , shells, pearls, stones, tea, sugar, metal

Fiat Money The word fiat means the   "command of the sovereign". Fiat currency is the kind of money which don't have any intrinsic value and it can't converted into

valuable resource. The value of fiat money is determined by government order which makes it a legal instrument for all transaction purposes. The fiat money need

to be controlled as it may affect entire economy of a country if it is misused. Today Fiat money is the basis of all the modern

money system. The real value of fiat money is determined by the market forces of demand and supply. Ex : Paper money, Coins

Fiduciary MoneyToday's monetary system is highly fiduciary. Whenever, any bank assures the customers to pay in

different types of money and when the customer can sell the

promise or transfer it to somebody else, it is

called the fiduciary money. Fiduciary money is generally paid in gold, silver or paper money. There

are cheques and bank notes, which are the examples of fiduciary money because both are some kind of token which are used

as money and carry the same value. 

Commercial Bank

MoneyCommercial Bank

money or   demand deposits   are claims against financial institutions that can be used for the purchase of goods and services. A demand deposit account is an account from which funds can be withdrawn at any time by cheque or cash withdrawal without giving the

bank or financial institution any prior notice. Banks have the legal obligation to return funds held in

demand deposits immediately upon demand (or 'at call'). Demand deposit withdrawals can be performed in person,

via cheques or bank drafts, using

automatic teller machines (ATMs), or through online

banking.

CURRENCY: WHAT ITS ALL ABOUT

Currency is a generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade.

The foreign exchange market is a global decentralized market for the trading of currencies. The main participants in this market are the larger international banks. Financial revolves around the world function as anchors of trading between a wide range of different types of buyers and sellers. These currencies are exchanged based on the exchange rate that is prevalent throughout all the world economies.

Exchange Rates

by Aditi• • •

Spot exchange rate refers to the current exchange rate Forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date.

Generally speaking, each country has its own currency. For example, India’s official currency is the Rupee, and Japan's official currency is the Yen. An exception would be the Euro, which is used as the currency for severa l European countries. Investors often trade currency on the foreign exchange market, which is one of the most heavily traded markets in the world.

The word currency is derived from the Middle English word ‘curraunt’, which means in circulation. The most specific use of the word refers to money in any form when in circulation, as a medium of exchange, especially circulating paper money.

FURTHER NOTES:

Exchange rate is the rate at which the currency of

a country can be exchanged for the currency of

another country. For example, currently 1 US

Dollar is equivalent to 61.94 Indian Rupees. This

means that Rs. 61.94 is required to purchase $1.

Interestingly, these rates continuously fluctuate

and may change every day. There are two types of

exchange rates namely, spot exchange rate and

forward exchange rate.

Talking about the Indian currency, its exchange

rate is lower compared to other countries, which

means that the purchasing power of the Indian

currency is less. There are various reasons for the

lower value of the Indian currency in the Global

economy. The main reason is because of the lack of

development of the country. Also the Indian

government, because of the economic policies,

manages the foreign exchange rate in to formulate

smooth trade with countries. However, sometimes

the government also changes the exchange rates

per their convenience. This is called dirty floating.

The currency, being quite an old form exchange,

has become very important in determining the

development of a country. India being a developing

country has a low exchange rate. The currencies of

other developing countries, like China, also have a

low purchasing power. The developed countries,

like the USA, have high exchange rates.

Counterfeiting Money: How to spot a copycat and

more...By Ashmit Gautam

From the dis,nc,ve feel of the greenback's co7on‐and‐linen‐blended paper to its watermarks. The TreasuryDepartmentgoestoexcrucia,ng lengthstoensurenoonecancounterfeitcurrency.So,clearlynoonecancounterfeitmoney by scanning a note and prin,ng it. One requiresmany skills, and some brains to counterfeit money. Thepaper used for money is squeezed with thousands ofpoundsofpressureduringtheprin,ngprocess.Thismakesit even thinner and gives newly made bills a specialcrispness.Theotherspecialthingabouttheragpaperusedin realmoney is that there are ,ny blue and red fibersmixedintothepaperwhenitismade.Thesefibersareeasytofindinreal money,buttheyaresofinethattheydonotreproduce very well in the counterfeit money from aprinter. This paper is however, impossible to buy; somecounterfeitersgoanextramile.

Nations have used counterfeiting as a means of warfare. The idea is to overflow the enemy's economy with fake bank notes, so that the real value of the money plummets. Great Britain did this during the American Revolutionary War to reduce the value of the Continental Dollar.

Currencycounterfei,ngisa crimethatcon,nuouslyposesathreattoa country’seconomyandisasourceoffinancialloss to itsci,zens.Someof theill‐effects that counterfeitmoneyhas on society areareduc,on in thevalueof realmoney; and increase in prices (infla,on) due to moremoney geNng circulated in the economy – anunauthorized ar,ficial increase in the money supply; adecreaseintheacceptabilityof papermoney; and losses.This happens when traders are not reimbursed forcounterfeit money detected by banks, even if it isconfiscated. At the same,me, in countrieswherepapermoneyisasmallfrac,onof thetotalmoneyincircula,on,the macroeconomic effects of counterfei,ng of currencymaynotbesignificant.Themicroeconomiceffects,suchasconfidenceincurrency,however,maybelarge.

Failure to take significant ac,on in comba,ngcounterfei,ng can lead to uninsurable risk, which has aharmful affect on the reputa,on and func,oning of acountry’scentralbank.

During World War II, the Nazis forged British pounds and American dollars. Today some of the finest counterfeit banknotes are called Super-dollars because of their high quality, and likeness to the real UK pound. There has been a considerable amount of counterfeiting of Euro banknotes and coins since the launch of the currency in 2002.

Ricky Scott Nelson, found a very realistic source of paper. Nelson took actual $1 and $5 notes and, using tape, masked some of the genuine images such as the Treasury and Federal Reserve Seals, serial numbers, and the "This note is legal tender" advisory. The masked bills were then soaked in bleach to remove the images and denomination numbers .Nelson then created a template that enabled him to photocopy images and detail from $50 and $100 notes onto the bleached areas of the original currency and thus created money, which was “good enough” for the naked eye. And to get around the colour shifting ink, metal security strip that runs through the vertical side of the paper and the watermark, Nelson used old notes which were still in use, but not equipped with all these security measures.

HISTORY’S B IGGEST FRAUDS

Alves dos Reis was the man responsible for what Wikipedia calls “one of the largest frauds in history” – a meticulously planned looting of Banco de Portugal in 1924. Rather than printing his own counterfeit currency, dos Reis had the novel idea of forging a contract in the bank’s name authorizing a printing company to print more actual currency. Upon assembling a team of foreign spies and diplomats, dos Reis pushed the contract through, obtaining all the needed signatures and getting the money printed under the guise of financing a loan for Angolan economic development. When all was said and done, printer Waterlow & Sons Ltd. had produced 200,000 bank notes of 500 Portuguese escudos, amounting to roughly 1% of the nation’s GDP at the time. Though his con was eventually found out, dos Reis himself served next to no jail time and died freely of a heart attack (perhaps poetically, in poverty) in 1955.

Continued on next page...

PortraitThegenuineportraitappearslifelikeandstandsoutdis,nctlyfromthebackground.Thecounterfeitportraitisusuallylifelessandflat.DetailsmergeintothebackgroundwhichisoQentoodarkormo7led.

FederalReserveandTreasurySealsOnagenuinebill,thesaw‐toothpointsoftheFederalReserveandTreasurysealsareclear,dis,nct,andsharp.Thecounterfeitsealsmayhaveuneven,blunt,orbrokensaw‐toothpoints.

BorderThefinelinesintheborderofagenuinebillareclearandunbroken.Onthecounterfeit,thelinesintheoutermarginandscrollworkmaybeblurredandindis,nct.

SerialNumbersGenuineserialnumbershaveadis,nc,ve

styleandareevenlyspaced.TheserialnumbersareprintedinthesameinkcolorastheTreasurySeal.Onacounterfeit,theserialnumbersmaydifferincolororshadeofinkfromtheTreasuryseal.

PaperGenuinecurrencypaperhas,nyredandbluefibersembeddedthroughout.OQencounterfeiterstrytosimulatethesefibersbyprin,ng,nyredandbluelinesontheirpaper.Closeinspec,onreveals,however,thatonthecounterfeitnotethelinesareprintedonthesurface,notembeddedinthepaper.Itisillegaltoreproducethedis,nc,ve

paperusedinthemanufacturingofUnitedStatescurrency.

Howtodetectafakecurrencynote

Frank Abagnale was a master forger of checks. He also proved adept at slipping through the fingers of the federal agents who pursued him, largely through his ability to move at the drop of a hat. His ability to forge checks and cultivate nomadic tendencies came together in an impressive criminal statistic: Between the ages of 16 and 21, he cashed more than $2.5 million in fake checks in all 50 states and 26 countries. Perhaps one of the most daring counterfeiters to ever perpetrate fraud, Frank Abagnale carried out his most prolific work when he was in his teens and early twenties. The name may ring a bell; Abagnale wrote of his criminal past in a memoir, "Catch Me If You Can," which was made into a 2002 film starring Leonardo DiCaprio and Tom Hanks.

HOW TO SPOT A COPYCAT

RAPID RUPEE RECOVERY PLANHow to recover the rupee in a week in mainstream and .... almost legal ways. by: Nishchaya Nigam

RECOVERY PLAN 1Issuing bonds - loan recovery

India has a DEBT of about dollar 172 billion according to reports from. ‘The Hindu’. In a situation of severe economic crisis prevailing, India should make all efforts to repay its loan amount to have a rapid impact on the economy of the nation.

India is a reserve of black money and if government ignores this idea of black money for the time being, it could have an effect so massive even capable of destroying US ECONOMY within days.

This policy by floating parallel economy of BLACK MONEY into main stream of Indian economy may turn the table even internationally.

If government issues bonds guaranteeing interest on the collection and security of money coupled with repayment after a fixed time period,’ WITHOUT ASKING YOUR SOURCE OF EARNING, keeping all information confidential; money totaling more than trillions will be collected within weeks. This collection is enough to pay back our loans and save the amount that government pays as EMI. ? 

 The good thing about the black money stashed abroad is that it is in USD and not INR. It can simply become part of our foreign reserves. This takes the pressure off INR and domestic inflation. India’s total black money deposits account for about $1.6 trillion. If the black money is just lying stashed away in trunks and mattresses then that’s no good, but if people spend it then that stimulates the economy. $1.4 Trillion is net India's Black Money Stashed in Swiss Banks according to WIKILEAKS.

NOTE:Weallwillbehavingacommonques,onpoppinginmindi.e.willthispolicypromotecorrup?on??

>>Yes,ofcourseitwillpromotecorrup,onbutifitisinprac,ceforaveryshortspan,itwon’tatall.WemustrememberourmajorconcernisCURRENTECONOMICCRISISandnotblackmoney.WehavetoupliQeconomyandnotcontrolcorrup,onatthisstage.Alsothereisafearofbeingexposedtogovernmentdisclosingallourwealth.Soitmayleadtoverycontrolledcorrup,on,withthefearofbeingtrackedatall,mes.

RECOVERY PLAN 2Onesolu,onwe all know is to increase our exports soastoearndollars,butonefactorweneglectis the consumerbasethatwe need

to develop. This factor is not a point of concern for India aswe

supportanexis,ngconsumerbase of1.2billion(Ifweconsumeourowndomes,c products rather thandepending on foreign imports,

we may achieve economic stability withdouble impact). Insteadoffulfillingexportdemands offoreignconsumerbase,ifwecatertothe

needs of our own popula,on wemay contribute greatly towards

overalldevelopmentandgrowthofthecountry.

RECOVERY PLAN 3

India is a known for its uniqueproducts andspecial,es all over theworld. Indian food, Indian spices,Indian co7on, Indian rice, Indiancustoms and tradi,ons (tourism),Indian clothing, are to name a fewexamples ofhowdiverse anduniqueIndiais.

HowwecanweuseitwithIndianeconomyiswhatmakesadifference.

Insteadofexpor,ngourproductsinothercountriesandimpor,ngtheirswithtransac,onsindollars,ifwefollowaBARTERSYSTEMoftrade,wewilleasilyovercomeourdependenceondollarsandcouldevenmaintainourimportswithoutanyhurdles,rulingouttheroleofdollar.

OBVIOUSLY FOR A LAY MAN THE FALL OF RUPEE TO DOLLAR FELL MAINLY DUE TO THE CURRENT ACCOUNT DEFICIT THAT IS THE DIFFERENCE BETWEEN NATION’S SAVINGS AND INVESTMENT. For the past 10 years economists have observed the balance of the current account has risen tremendously. The deficit was $21.8 billion in April through June according to the data of the reserve bank of India. Since the main contributor of the current account is the trade account which is mutual in the case of deficits, let’s concentrate more on that. According to the annual book report of the RBI, trade deficit abruptly increased from 356448 crores in 2007-08 to 533681 crores in 2008-09, an increase by almost 50 %. However, it was less by 2.9 % in 2009-10, to be increased again by 4.3 % in 2010-11. India’s imports in 2010-11 was Rs. 1683467 crores compared to Rs. 1363736 crores in 2009-10, resulting in a positive growth of import (23.45%), although it was negative growth (– 0.78%) during 2009-10. Along with this positive growth in imports, the exports also grew significantly (35.17%) during 2010-11 compared to insignificant growth of 0.57% in 2009-10.

With numerous scams nurturing and promulgating itself from the womb of the government and now with new strategies of useless expenditure over food security bill leading to vote banks which cost 1.3lakhs crores annually which will adversely impact on the government’s ability to reign in the fiscal deficit (When a government's total expenditures exceed the revenue that it generates, excluding money from borrowings) and leading to skeptical views on achieving target of 4.8 GDP. The foreign liabilities have grown in the past years, for example India is given a deadline to repay IMF a debt worth $172 billion dollars by March 2014. The economic advisory council (EAC) has said

to the prime minister that the economy shall grow by 5.3% which is far below than promised growth which was 6.4%. Agriculture is the only expected field to do well due to good monsoon with increase of 4.8% as 1.9% last year. But the agriculture sector has a small share in GDP and is not enough to recover through the widening CAD but EAC’s projection of a $70 billion deficit (3.8% GDP) against $88.2 billion (4.8% GDP) seems over optimistic. But, it would be deemed unfair if we put all the blame over politics over an economic crisis albeit it plays a big role but not whole.

International affairs ascertaining our markets should be given considerate amount of attention as well as it seems we are heavily guarded by such organization from whom we seek security may tomorrow be the ultimate threat to us. On the bright side all emerging markets are going through the same dilemma like Indonesia, Malaysia, Thailand and Philippines as well. But, unlike others India’s market has been opened by its government like a girl’s skirt in a windy morning and those departments which should be under government authority, have been opened such as defence, IT sector, manufacturing and other industries. The major trade deficit is due to increase in manufacturing products followed with unbelievable increase in the demand of gold, silver and oil. FDI measures are likely to be fruitful only over long period of time, while RBI steps are seen as large as bandages that will be effective only for short term. RBI has started tightening its monetary policy and the new governor has already taken few steps which have resulted in the sheltering of the rupee. With high interest rates and modest reforms such as deregulating certain areas of financial sector, focus on creating necessary institutions and closing gaps in regulation, More small private banks and disinvestment in state run banks and freeing of branch of licensing rules. One interesting reform which has become controversial among many economists that Raghuram Rajan’s recent announcement of allowing banks to borrow from global markets that is in dollars when interest rates are rising because of expected reversal of United States Federal Reserve easy monetary policy is tutored to this logic.

Also, to add the major which has played a role in such deficits that is imports of electronic devises, increasing consumerism has pushed us to a critical point of falling in the international market. We must cut on imports on gold and have to limit ourselves on using oil and use fuel efficient methods to sustain our growth. While we take small steps we shall see how the bosses will handle the big steps to make a bigger difference.

Rupee not my best friend...by Kritigya Dhanda

APNA SAPNA: MONEY MONEY

RUPEE IS SOMETHING WE USE TO SPEAK, COMMUTE AND LIVE WITH EVERYDAY. RUPEE I N S I M P L E T E R M S I S A M E D I U M O F E X C H A N G E MEANT TO COMMUTE OUR LIFE EASILY. Life without currency is impossible ever since evolution of humans though it acquired different forms but, have we ever thought about how all this started? Who coined the term ‘rupee’? What is it made of? Why is Gandhiji embossed in our currency and so on.

Friends it’s alright if u haven’t given it a thought because through this article we’ll have a short virtual tour of LIFE OF RUPEE and I promise you won’t regret spending your time reading it.

Money@innovation

Nowadays new materials have come up in place for cotton paper currency. Countries like Canada have planned to adopt newly designed plastic currency made of polymer material which are harder to fake, recyclable, and are thrice more durable than normal currency material.

In 2010, special coins of Rs75, Rs100 and Rs1000 were issued by RBI though it was only for celebratory purposes. They were made to celebrate 75 years of Reserve Bank of India, 100 years of Rabindranath Tagore a n d 1 0 0 0 y e a r s o f Brihadeeswarar temple.

Past@rupee

To start with let me narrate you how it all began. ‘RUPEE’ is derived from a Sanskrit word ‘raupya’ which literally means ‘silver coin’. In 2010 new symbol for rupee was adopted, created by D.Udaya Kumar and is taken from Devanagari script. It is a mix of Latin word ‘R’ and Devanagari Letter ‘र’ First use of ‘rupee’ is linked to Sher Shah Suri in 1486 in ratio of 40 copper-coins paisa per rupee. After India got freedom in 1947, first ever coins issued by government were in 1950 made up of Cupro-nickel. In 1964 aluminum was adopted for dominations till 20 paisa and Stainless steel coins were finally adopted in 1988.

Opinions and reviews @money

Current situation of Indian economy and rupee these days is quiet debatable with historic depreciation of rupee’s value in recent past and debt that India is suffering from. It is a matter b i g ge r t h a n t s u n a m i a n d Uttrakhand floods as it has affected every Indian in some way or other.

Not just common man is hit worst; statistics show how top five businessmen of the country including Mukesh Ambani, Azem Premji and others lost about $5million in one month. This historic jump of rupee triggered a price rise of almost each and every item tagged necessary to live. From food to fuel to lifestyle, everything was affected. It is a matter of shame for our country’s government that a situation like 1990s is back with Manmohan Singh as

P R I M E M I N I ST E R w h o i s credited for helping India emerge from a major deficit in 1991.

  Opposition leader Narendra M o d i s p e a k i n g a b o u t t h e devaluation of Indian currency said "Rupee is depreciating sharply...I wonder if there is a competition going on between t h e D e l h i - b a s e d ( U P A ) government and the Rupee on who is losing esteem faster. When the countr y gained independence one rupee was equal to a dollar and during the regime of an economist-PM it has now reached 60," the BJP's campaign committee chief said.

It is not just politicians and bureaucrats to think about these issues but also a responsibility of today’s youth to give it a thought and voice concern towards root causes to prevent such hell like conditions in future. Government should minimize our non committed imports like gold and defense and make efforts to curb the consumption of crude oil to control expenses. Also policies should be devised to increase e x p o r t s a n d r e d u c e o u r dependency on foreign imports and increase exports thus strengthening our economy.  Whether the currency would find its stable level or will continue to slide further still remains a tricky question to answer.

by: Nishchaya Nigam

NOTE FROM THE EDITORThank you for reading the first issue of the economic journal. I would like to congratulate all those who participated in this issue, they worked very hard and put in a lot of time and effort into preparing this. Starting from deciding the theme to writing the articles.

The purpose of the journal was to connect economic sphere with different areas in liberal arts. Further, spread awareness of daily economic activity and be a medium through which students can voice they’re own views and ideas relating to this field. Other than that, the aim of this journal was to provide a platform

where students can further develop their research and writing skills.

The first semester students chose to represent the rupee as the first theme of the economic journal, given the currency fluctuations India has faced. They came up with a variety of articles ranging from academic writing to technical, journalistic and creative writing.

This is the first of many journals, please send us your views on this journal. We welcome your feedback on this issue.

- Vasudha Mukherjee (BA Economics semester V)

ECONOMIC JOURNALEconomic Society

Ambedkar University, Delhi

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A special thanks to Juhi Sharma and Nishchaya Nigam, BA semester I students for the name of the journal.