Monetary Policy
and Banking
Money
• Functions of Money:
• Medium of Exchange
• Unit of Account
• Store of Value
• Standard of Deferred Payment
• Liquidity
• Facilitating International Trade
Money and Banking
• Evolution of Money
• Barter System
• Double coincidence of wants
• Have intrinsic value of goods
• Problem of search cost and time cost
• Problem of Store of value (esp Perishable goods)
• Problem of unit of account
• Commodity Money
• Gresham's Law: “bad money drives out good money”
• Paper Money/Fiat Money
• Legal tender: Bank notes and Coins
• RBI Act, 1934
• Coinage Act, 2011
• Problem of soiled notes (wear and tear)
• Demonetization
Understanding Indian Currency
• Name and Symbol
• Coins :
• Issuer: GoI under Section 6 of The Coinage Act, 2011,
• Legal Exception defaced and underweight
• >= ₹1
• 50 paise
• Bank Notes:
• Issuer: RBI
• Guaranteed by the Central Government
• ₹1 bank note: issuer : GOI, legal tender
• Exception: ₹500, ₹1000 Mahatma Gandhi Series issued upto Nov
8, 2016
• Role of the Reserve Bank of India in Currency Management
• Issuance Right
• Design and Material Approval
• Quantity Estimation:
• Clean Note Policy
• Coins Distribution:
• I promise to pay" clause
• Denomination banknotes which are currently in circulation
• Other denomination bank notes: RBI Act, 1934, as central govt specify
• Highest denomination note ever printed:
• Material Used
• languages appear in the language panel
• Security Features
• Mobile Aided Note Identifier (MANI)
• Soiled and Mutilated Banknotes
• Counterfeits/Forgeries
• Fiduciary money
• Based on trust rather than on a physical commodity or on a government's
promise to accept it as payment.
• Loans, Cheques etc
• Credit Money
• Plastic Money
• Credit and Debit cards
• Electronic Money
• Internet Banking, Gpay, Phonepe etc
• Cryptocurrency
• A type of digital or virtual currency that uses cryptography for
security
• Decentralized
• No central control
• Blockchain technology
• Decentralised ledgers
• Digital Wallets
• Non Fungible Token (NFTs)
• Blockchain technology
• type of digital asset that represents ownership of a unique item or piece
of content, such as a piece of artwork, music, video, or even tweet
• use smart contract technology to ensure that each NFT is unique and
cannot be replicated.
• Different value for different NFTs
• Applications of NFTs in India: Digital Art, Entertainment industry,
Agriculture and Gaming and Metaverse
• Central Bank Digital Currency (CBDC)
• Amendment to RBI Act, 1934
• Legal tender status
• Like coins and notes, CBDC are liability on RBI
• launched pilots of CBDC in both Wholesale and Retail segments
• Digital Rupee -Wholesale (e₹-W): use case being limited to the settlement
of secondary market transactions in government securities
• Amendment to Coinage Act, Foreign Exchange Management Act(FEMA)
and IT Act
• Concept of Bank
• Demand Deposit
• Time Deposit Fixed Deposits
Recurring Deposits
• Concepts of Asset and Liability
