representative money or modern money, the following
types of money remained in operation:
The money whose
face value is equal to its real value is called full
bodied money. All the moneys which were used under
commodity standard like wool, boat, sheep, cow, goat and
arrows etc., had equal monetary and non-monetary values.
Again the silver coin of Rs. 1 which was used in
Subcontinent before 1857 was the representative of full
bodied money because the value of the metal of such rupees
was also equal to Rs. 1. The same like situation was also
available in case of gold coins issued under gold standard.
Representative Full Bodied Money:
The money in
coins or in paper-lacking its own value may be accorded as
representative full bodied money, if it is backed by equal
amount of gold or silver. In such case the gold or silver is
accumulated by govt. and some representative of such
commodities is issued for circulation. As during 1900 to
1930 US govt. issued gold certificates. Such certificates
were gold guaranteed which was possessed by US treasury. By
giving back a holder of such certificates could entail upon
100% gold equal to the value of certificates. It
means that gold and such certificates were equally
well. Like gold certificates US govt. also issued 'Silver
certificates'. Such certificates were also convertible at
official price of 1.29 dollar per ounce of silver. Because
of representative money the transaction cost decreased. The
cost of melting the gold and silver for coins were also
(3) Credit Money or Fiat Money:
The money whose
face value is more than its intrinsic value is called
credit money. In other words, the money whose
non-monetary value is more than its monetary value is given
the name of credit or fiat money. Thus all the coins and
paper currency notes which are in circulation in a country
represent credit money. In addition to official currency,
the cheques of commercial banks also represent credit money
because the face value of cheques is far more than value of
cheques as papers. The credit money - the major component of
money supply of present time is decomposed into two parts:
(i) The credit
money issued by govt. or central bank.
(ii) The credit
money issued by commercial banks of a country.
Credit Money Issued by Govt. and Central Bank:
The coins which
are issued by Govt. and central bank have more face value as
compared with the value of metals possessed by such coins.
Accordingly such coins represent credit money - as the case
of one rupee, two rupees and five rupees coins in Pakistan.
The coins which are not full bodied represent token coins.
In addition to coins govts. and central banks also issue
credit money in the form of paper currency - as the case of
all currency notes from Rs. 10 to Rs. 5000 in Pakistan. The
paper credit money which is guaranteed to convert into
standard money is called convertible paper currency - the
case of all currency notes from Rs. 10 to Rs. 5000. While
the paper credit money which is not guaranteed to convert
into standard money is called inconvertible paper money - as
the case of one rupee, two rupee or five rupee coins in
This must be
remembered that the coins and currency notes which are
issued by govt. and central bank are known as 'Legal
Money'. The legal money whose payments and receipts can
be made without any limit is called unlimited legal money
..While the legal money whose payments and receipts can be
made up to a specific limit is called limited legal money.
(ii) Credit Money Issued by
The money issued
by govts. and central banks has a flaw that:
(a) It is
inadequate to meet the rising needs of present time.
(b) It is a
troublesome job to transfer when it is in huge amount.
need was realized to invent such a form of money which could
be quickly used for transactions and it should not be bulky.
Accordingly, commercial banks introduced "Cheque" as a
medium of exchange. Cheques do not represent money, rather
money consists of those amounts which are with the banks.
Cheques are the means for transferring the money. In
addition to cheques, commercial banks have introduced a
variety of other monetary instruments like drafts, call
deposit receipts and credit cards.
All the above
discussion shows that the major part of money today consists
of credit money like coins, paper currency and cheques etc.
As far as the backward countries are concerned legal money
still dominates. While in case of rich countries the credit
money issued by commercial banks etc. has attained
extra-ordinary importance. In such countries people are
extensively using credit cards for the sake of transactions.
The credit cards known as 'Plastic Money' is the latest
form of money.
Due to spread of
computer and advanced technology, the payment system through
banks is becoming easy and easy. Accordingly, it is said
that as the electronic means of payments are popularized,
all the paper formalities regarding clearance of cheques
will come to an end. In this connection, the most important
is Electronic Money i.e. E-Money which has the
(a) Debit Cards:
The debit cards are like Credit Cards. With the help of
these cards, the card holders transfer the amounts from
their accounts to those people of stores wherefrom they
purchase the goods. As, if anybody makes the payment at some
super store such is made with the help of credit card. But
the same is also done with the help of debit card where the
amount to be paid is debited from one's account just by
pressing a button in the electronic machine placed in the
departmental store. So, many big companies like VISA and
Mater Cards are issuing debit cards. Moreover, so many
commercial banks have also issued Automatic Transfer Cards
(ATM) to its account holders. These cards are also used as
the cards of payments.
(b) Stored Value
Cards: These are like credit cards and debit cards.
However, they are attached with some specific amount Such
cards are normally used for those small payments which are
well-anticipated by the consumers. The most important of
them is the Smart Card. Such card has its own computer chip
which is filled with Digital cash from the bank account of
the card holder. These cards are used in Australia, Canada,
Colombia, Denmark, France, Italy, Singapore, Spain and U. K.
However, their use is less in US.
Electronic Cash (E-Cash): E-Cash is such a type of
electronic money where the goods and services can be
purchased through internet. Thus, the buyers who are account
holders keep the record of their accounts in their personal
computers. Through such computers the amounts are
transferred from the buyer's computer to the seller's
computer. These amounts are transferred from buyer's account
to the seller's account even before the sale and purchase of
goods. This system was firstly introduced by a Dutch company
Electronic Cheques: The internet users make the payments
of their bills through internet rather than cheques. As, if
a person has to make the payment of his telephone bill, he
will write down such amount to the concerned company from
his personal computer through internet The company will
shift such amount from the customer's account to his own
account All such will be processed through internet. This
system of transaction is easy and .cheap. It will be
popularized in the coming days. The cost of transferring
money through this method are one-third than those of paper
cheques. Although the electronic money is beneficial, it is
also furnished with so many problems.