Classification of Money
Classification of Money has been classified on the following-
1. Monetary System Criteria
Under monetary system, the, money is classified into three categories as under, (i) Metallic money, (ii) Paper money, (m) Credit money.
(i) Metallic Money
Money, made of any metal is known as money. Metallic money is furthers undivided into 3 parts as:
(a) Standard money
(b) Token money
(c) Subsidiary money
(a) Standard Money
If the value of coins is equal to its intrinsic value then is known as standard money. Standard money is unlimited legal tender and any amount of payment can be made in.
(b) Token Money
It is representative money, where intrinsic value of coin is less than its face Value. The rupee coin in India is a token coin.
(c) Subsidiary Money
All coins of denominations from 5 paisa to 50 paisa in India are subsidiary money. Such coins are limited legal tender.
(ii) Paper Money
Paper money is made of paper and issued by the central bank: Paper money is classified into-
(a) Representative paper money
(b) Convertible paper money
(c) Inconvertible paper money
(d) Fiat, money
(a) Representative Paper Money
It is backed by gold coins held by the treasury and convertible into gold coins. The gold certificates issued in United States prior to 1933 were representative paper money antimir.
(b) Convertible Paper Money
It does not have 100% backing in the form of gold or bullion, but the holder of paper money can get it converted into bullion on demand.
(c) Inconvertible Paper Money
The paper money which does not have any blacking of bullion and is not convertible into gold is known as inconvertible paper money Notes issued by central banks are known as inconvertible paper money.
(d) Fiat Money
Paper money which is circulated on the authority and powers of the government is known as fiat money. It is a legal tender but can not be converted by law. It is known as token money.
(iii) What is Credit Money
Credit money is transferred by a commercial bank in the form of a cheque or draft. It is the demand deposit which is bank money and it is transferable from one person to another person through a draft. It is not a legal tender and can not be used as a medium of exchange.
2. Acceptability Criterion
On this basis money is classified as:
(i) Legal tender
(ii) Non-legal tender money
(i) Legal tender Money
It is that money which is accepted as the means of payment and is used in the discharge of debts. It is accepted compulsorily by the people. All notes and coins issued by the government are compulsory legal tender in the country. It is further divided as follows:
(a) limited Legal tender Money
Under if payments are to be made legally up to a certain limit. All coins in India are legal tender and payment in them can be made upto a limit of Rs 25 only.
(b) Unlimited legal Tender Money
When payments can be legally in unlimited quantities, it is known as unlimited legal tender money. All paper notes in India are unlimited legal tender.
(ii) Non-legal tender Money
Money which does not possess any kind of legal authority is known as non legal tender money. Cheques, drafts etc. are non legal tender money.
3. Money of Account Criteria
Money of account is that in which debts and prices and general purchasing power are expressed as follows:
Money and Near Money- Money is a legal tender and provides liquidity, while near money do no nave any legal status. They possess liquidity but dos not have ready liquidity like money. They are perfect substitutes for money.
Characteristics of Money
(1) Durability of Money
Money must have durability, should be storable and should not lost its value over a period of time. Gold, silver, alloy, brass etc are the best materials which can be used as money.
(2) Cognoscibility of Money of Money
The material used in coins should be easily recognized by everyone. It must be of different design and sizes and should be of good quality.
(3) Divisibility of Money
The money should be capable of being divided into smaller parts. Gold and silver possess such quality and it can be, divided into smaller parts having the same value in parts. The same should be the case with paper money.
(4) General acceptability of Money
Money should be of such type which should be acceptable by everybody. Gold and silver are considered good money materials because they have their alternate uses and are generally accepted by everyone. Paper moneys are also accepted when they are issued by the central bank.
(5) Portability of Money
The material used in money should be easily carried and transferred from one place to another place. If should contain large value in small bulk. Paper money is considered as a better money.
(6) Homogeneity of Money
The material used in money should be of the same quality. All coins should be of same weight, shape and size. Paper money of different denomination should be of same quality, design and size.
(7) Stability of Money
Money should be stable in value, because it serves as a measure of value. Gold and silver possess such quality. They act as a store of value. But governments prefer paper money on account of its cheapness and easily availability. It value is kept stable by keeping control over its issue. Currency having stability is treated as the good money for the country.
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