Principles of

Money & Banking

 The Concept of Money

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab

 The Concept of Money

Defining Money
General Acceptability
Money is anything that is generally
acceptable in payment for goods and in
discharge of all kinds of business
obligations.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 2

 The Concept of Money contd

Descriptive Approach:
This approach says that besides acting as a
generally acceptable thing, money must have
certain other qualities as given below.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 3

 The Concept of Money contd

Legal Aspect:
J.M. Keynes was the first to emphasize on the legal
aspect of money.
Money itself is that by delivery of which debt
contracts and price contracts are discharged and in
the shape of which general purchasing power is
held.
What is said in the above three definitions can be
summed up in the famous saying.
Money is a matter of functions for a medium, a
measure, a standard , a store.
Prof. Riaz Ahmed Mian, HCBF, University of the Punjab
 Types of Money

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 4

 Types of Money

1. Commodity Money:
Examples include iron tools, war equipments,
swords, knifes, animal skins, animal teeth,
fish teeth, nets, crops, stones etc.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 5

 Types of Money contd

2. Metallic Money:
Metallic money (a coin as they are now
called) are of small denomination and their
intrinsic value (i.e., the value of metal
content) is much lower than their face value.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 6

 Metallic Money contd

Advantages:
1. They can be conveniently kept.
2. They can be rapidly converted into
other type of currency.
3. There is no chance of hoarding or
melting as intrinsic value of metal is less
than the face value.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 7

 Metallic Money contd

Disadvantages:
(a) Full bodied money: It means that the
piece of metal that is used as a money has the
same intrinsic and face value.
(b) Token money: It means such a money
whose intrinsic value is less than its
face value.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 8

 Types of Money

3. Paper Money:
(a) Representative Paper Money
(b) Convertible Paper Money:
It is such a form of money which can
be converted into gold and metallic
reserves but not all the notes issued by the
govt. are fully backed by gold.
(contd..)

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 9

 Paper Money Contd
(c) Fiat Paper Money:
Fiat paper money is one that we have
got in our pockets. Neither it is convertible,
nor it is fully backed by gold or metallic
reserves. If you read your 100 rupee
note, you will find:
:

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 10

 Types of Money

4. Bank Money:
Bank money means near money, which is
not always legal tender but it is widely
accepted as a medium of exchange.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 11

 Bank Money contd

(a) Cheque
(b) Bill of Exchange:
(c) Draft

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 12

 Types of Money

5. Plastic Money:
Plastic money means the credit cards and
plastic cards which have silicon chips and a
specially printed set of characters.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 13

 Types of Money

6. Other Forms:
(a) Black Money: Black money is one
which has been gathered through
illegal means.
(b) White Money: White money is one
which has been earned through legal
and legitimate means.
(contd)

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 14

 Types of Money

Other Forms contd

(c) Cheap Money: Cheap money is

one whose cost of borrowing is less
than the standard rate of interest.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 15

 Types of Money

Other Forms contd

Dear money: In times of boom there is a

high demand for money. To control
it banks usually increase the interest
rate above normal level.

Prof. Riaz Ahmed Mian, HCBF, University of the Punjab 16

thank U

Best of Luck