Money and credit transaction in world

Money as a medium of exchange

The use of money spans a very part of our everyday life. If you look around yourself you would easily be able to identify a number of transaction that inlove money in any single day. Can you make a list of these in most of these transaction, goods are beings bought and sold with the use of money. In some of these transtransaction, service are being exchange with money. For some, there might not be any actual transfer of money taking place now but a promise to pay money later. Have you ever wondered why transaction are made in money. The reason is simple. A person having money can easily exchange it for any commodity or service that he or she might want. Thus everyone prefer to recive payment in money and then exchange the money for thing that they want.‎ (opens in a new tab)

Money and credit transaction in world

Modern forms of money

We have just studied that money is something that can act as a medium of exchange in transaction. Before the introduction of coins, a variety of object was used as money. For example, since the very early ages, Indian used agains and cattle as money. After that metallic coins – gold, silver, copper coins were used as a medium of transaction. This phase continued well into the last century.


Modern forms of money include two types of 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. And unlike grain and cattle that were used as medium of exchange in earlier days, they are neither of everyday use. The modern currency is without any use of its own. Then, why is it 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. In india, the authority to issue currency notes on behalf of the center government is given to the Reserve Bank of India. As per Indian law, no other Individual or organisation is allowed to issue currency. Moreover, the law legalized the use of ruppe as a medium of payment that cannot be refused in setting transaction in india. No individual In india can legally refuse a payment made in rupee.

Deposits with Banks

People also hold money as deposit with banks. At a point of time, people need only some currency for their day to day needs. For example, worker who receive their salaries at the end of each months have extra cash at the beginning of the months. What do people do with this extra cash they deposit it with the banks by opening a bank account in their name. Banks accept the deposit and also pay an interest rate on the deposit. In this way people money is safe with the banks and it earns and interest. People also have the provision to withdraw the money as and when they required. These deposit in the banks account which can be withdrawn on demand, are called demand deposit.

Formal sector credit in india

Money and credit transaction in world

People get loans from various sources. These loans can be grouped into formal sector loans and informal‎ (opens in a new tab)sector loans. Those loans which are borrowed from banks and cooperative are called formal sector loans. The informal lenders include money lenders, traders, employer, relative and friends, etc. The functioning of formal sources of loans is supervised by the reserve bank of india.

Leave a Reply

Your email address will not be published. Required fields are marked *