we shall begin with Money what is that ?It is a classic invention to eliminate the insurmountable difficulties of barter namely the absence of double coincidence of wants.Crowther's book An Outline of Money will gie a good narrative on the evolution definition and functions of money .The couplet
Money is a matter of functions four
A medium measure standard and store.
In the early stages the role of money was performed by many commodities and eventually gold and silver settled themselves as commodity money and then came Representative paper money..Gold was still the ultimate and currency notes represented them.ie money was convertible into gold.That was the period of gold standard in its purest form and we shall not bother about its further incarnation like gold bullion standard and gold exchange standard where progressively the conversion of paper into gold was diluted /molested to conserve the limited gold stock.
At long last fiat money replaced the convertible money..ie the paper was no longer represented gold or any valuable collateral It was legal tender because government said so .You woul have noted the sentence on the currency note i promise to pay a sum of rupees......to the bearer on demand attested by the governor of central Bank ( in our country it is RBI)...thus money became a promissory note by the federal government-an IOU...It was accepted as money because it was guaranteed and decreed by the bank? govt that it was money ie by decree or order it was money and everyone accepted it and this general acceptability by the general Public is an important feature of the fiat money economy.here htere is an implicit accountability on the part of RBI to keep the value of money reasonably stable ie controlling price rise which means the inflation level must be moderate.As is well known the fiat currency system had an inflationary bias on a secular basis...currently in some developed countries like Germany (read EU now) inflation control has been accorded the most important place.
Going back to the story on money as IOU like the promissory note I must say now precisely this promise was broken by Mr Modi the PM on that fateful day night November 8 2016..His words intent tone language appeared to be more populist and resembled like a savior to save the poor.It is a great iron that the stupid masses then and thereafter did not internalize the economic common sense that it was virtually a war against the poor .
Money is a matter of functions four
A medium measure standard and store.
In the early stages the role of money was performed by many commodities and eventually gold and silver settled themselves as commodity money and then came Representative paper money..Gold was still the ultimate and currency notes represented them.ie money was convertible into gold.That was the period of gold standard in its purest form and we shall not bother about its further incarnation like gold bullion standard and gold exchange standard where progressively the conversion of paper into gold was diluted /molested to conserve the limited gold stock.
At long last fiat money replaced the convertible money..ie the paper was no longer represented gold or any valuable collateral It was legal tender because government said so .You woul have noted the sentence on the currency note i promise to pay a sum of rupees......to the bearer on demand attested by the governor of central Bank ( in our country it is RBI)...thus money became a promissory note by the federal government-an IOU...It was accepted as money because it was guaranteed and decreed by the bank? govt that it was money ie by decree or order it was money and everyone accepted it and this general acceptability by the general Public is an important feature of the fiat money economy.here htere is an implicit accountability on the part of RBI to keep the value of money reasonably stable ie controlling price rise which means the inflation level must be moderate.As is well known the fiat currency system had an inflationary bias on a secular basis...currently in some developed countries like Germany (read EU now) inflation control has been accorded the most important place.
Going back to the story on money as IOU like the promissory note I must say now precisely this promise was broken by Mr Modi the PM on that fateful day night November 8 2016..His words intent tone language appeared to be more populist and resembled like a savior to save the poor.It is a great iron that the stupid masses then and thereafter did not internalize the economic common sense that it was virtually a war against the poor .
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