7Money and CreditHistory of Money

By Harpreet Kaur Class- 10th A

Where all begins

1792 - 1750 BC: Money and banking originates in Babylonia out of the activities of temples and palaces which provided safe places for the storage of valuables. Initially deposits of grain are accepted and later other goods including cattle, agricultural implements, and precious metals.

The Code of Hammurabi inc ludes laws governing banking operat ions - a l l carved in stone!

640 - 630 BC The earliest coins made in Lydia, Asia Minor, consisted of electrum, a naturally occurring amalgam of gold and silver.

Exchange of personal possessions

Barter

In addition to barter

Prototype of money

Fertility rites and beliefs

Shells

China, 1.200 B.C. (End of Stone Age)

In addition to knives and spades

Holes to make a chain

Base metals

First metal money

500 B.C. in Lydia and Turkey

Gods and emperors to mark the value

Silver coins

China, IX-XV: 1st paper currency as money

Inflation 1455: disappearance* Arrival in Europe after years

Paper currency

£, $, € (1999)

Digital cash

Today & Tomorrow

What is money?Before the development of a medium of exchange, people

would barter to obtain the goods and services they needed. This is basically how it worked: two individuals each

possessing a commodity the other wanted or needed would enter into an agreement to trade their goods. 

This early form of barter, however, does not provide the transferability and divisibility that makes trading efficient.

For instance, if you have cows but need bananas, you must find someone who not only has bananas but also the desire for meat. What if you find someone who has the need for meat but no bananas and can only offer you apple? To get your meat, he or she must find someone who has bananas

and wants apple.

The lack of transferability of bartering for goods, as you can see, is tiring, confusing and inefficient. But that is not where the problems end: even if you find someone

with whom to trade meat for bananas, you may not think a bunch of them is worth a whole cow. You would then have to devise a way to divide your cow and determine how many bananas you are willing to take for certain

parts of your cow. To solve these problems came commodity money, which is a kind of currency based on the value of an underlying

commodity.

Money act as an intermediate in the exchange process.Currency is authorized by the government as medium of

exchange.

MONEY AS A MEDIUM OF EXCHANGE

The use of money spans a large part of our everyday life. In transactions, goods are being bought and sold with use of money. In some transactions, services are being exchanged with money. When both parties have to agree to sell and buy each others commodities this is known as Double coincidence of wants. In contract, in an economy where money is in use, money by providing the crucial intermediate step eliminates the need for double coincidence of wants. Once he has exchanged his goods for money, he can purchase other goods in market. Since money as an intermediate in the exchange process. It is called a medium of exchange.

Modern Forms of Money

Before the introduction coins, a variety of objects was used as money. For example, since the very

early ages, Indians used grains and cattle as money. Thereafter came the use of metallic coins.

CurrencyModern forms of money is include currency- including paper notes

and coins. The modern currency is without its own use. In India, the reserve bank of India issues currency notes on behalf of the

central government. In India rupee widely accepted as a medium of exchange. It is accepted as a medium of exchange because the currency is authorized by the government of the country. No other

individual or organisation is allowed to issue currency.

Deposits with Banks

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. Banks accept the deposits and also pay an interest rate on the deposits. Since the deposits in the bank

accounts can be withdrawn on demand, these deposits are called demand deposits. For payments payer can made a cheque if he

has an account in bank . A cheque is a paper instructing the bank to pay a specific amount from the person’s account to person in

whose name cheque has made. Thus, demand deposits share the essential features of money. The modern form of money- currency

and deposits- are closely linked to the working of the modern banking system.

CHEQUE PAYMENTS

Loan Activities Of Banks-these days bold about 15% of their deposits as Banks in India cash.

- -Kept as provision to pay the depositors who might come to withdraw money from the bank on any given day.

- -There is a huge demand for loans for various economic activities.

--Banks mediate between those have surplus funds and those who are in need of these funds .

-- Banks charge a higher interest rate on loans than what they offer on deposits.

- Bank use the major portion of the deposits to extend loans.- Difference between the interest rates is the main source of income

for banks.

LOAN ACTIVITIES OF BANKSThere is an interesting mechanism at work here. Banks keep only a small proportion of their deposits as cash with themselves. Banks use the major portion of the deposit to extend loans. The difference between what is charged from borrowers and what is paid to depositors is their main source of income.

CreditA large number of transactions in our day to day activities

involve credit in some form or the other.CREDIT: It refers to an agreement in which lender supplies the

borrowers with money, goods, services in return for the promise of future payments.

Credit plays a vital and positive role as well as a negative role.

Whether credit will be useful or not depends upon the risks in the situation & on whether there is some support, in case of loss.

Credit—in its negative role—(debt-trap)In the rural areas the main demand for the credit is for the crop

production. Crop production involves considerable cost on seeds, fertilizers, pesticides, water, electricity, repair of equipment etc..Farmers usually take crop loans at the beginning of the season

and repay loan after harvest.

Repayment of the loan is dependent on the income from farming.

At times repayment of the loan becomes difficult and credit instead of improving the earnings,

pushes the borrower into a situation from which recovery is very difficult & painful .

this situation is called DEBT TRAP

Terms of Credit :- Interest rate

- Collateral- documentation requirement.

- the mode of repayment.

-Loans from banks and co-operatives Functions of Reserve banks.

- Issues currency notes on behalf of the central government.

- RBI monitors the banks are actually maintaining cash balance.

- RBI collect information from banks, how much they are lending to whom,

at what interest rate etc.

Formal Sectors

Informal Sector LoansThe informal lenders, traders, employers, relatives and

friends etc.- There is no organization which supervise the credit

activities of lenders.- They can lend at what ever interest rate they choose.

- Their is no one to stop then from using unfair means to get their money back.

SELF-HELP GROUPS FOR THE POOR

Banks are not present everywhere in rural India. Even they are, getting a loan from bank is much more difficult than taking a loan from the informal sources. In recent years, people have tried out some new ways of providing

loans to the poor. SHG is one of them. A typical SHG has 15-20 members, usually belonging to

one neighborhood, who meet and save regularly.

THANK YOU

SUBMITTED TO ;-MRS. BINDU

VAID