Advantages of Paper Money
Advantages of paper money
Different types of paper money
By paper money is meant the paper currency notes as well as the cheques, where they are generally accepted. In our country, paper money consists of currency notes only. But in advanced countries like the U.K. and the U.S.A., where cheques freely circulate from hand to hand, cheques are also included in paper money. Further, promissory notes, bills of exchange and hundies also serve as money within a limited circle.
In ancient era, when notes were launched, they were supported by an accurately equivalent quantity in silver or gold set aside by the respective authority. Such notes could be exchanged for coins when needed and did nothing more than represent coins. They were representative paper money. American gold certificates (green backs) were of this type. This practice was very expensive and is no more current now.
Paper money is not completely supported by specie (i.e., valued metal) nowadays. Simply balanced reserves are preserved and a good degree of the paper money respites on citizens’ self-confidence in the declaration of the respective authority, be it the management or the Reserve Bank of the nation. Such a currency is termed as the fiduciary issue (i.e., depending on trust or confidence). The total notes in circulation in India during week ended August 19, 1983 amounted to Rs. 17,987 crores nearly. This amount was backed by nearly Rs. 225.6 crores worth of gold, supplemented by foreign securities and securities of the Government of India. Thus, currency is of a fiduciary issue.
Advantages of paper money
Paper money has got several advantages and disadvantages. The following advantages can be mentioned:
1. Economical. Paper money practically costs nothing to the Government. Currency notes, therefore, are the most economical medium of exchange. If a country uses paper money, it doesn’t require spending everything on the acquisition of gold for issuing coins. The loss which a country suffers from the wear and tear of metallic money is also avoided.
2. Convenient. Paper money is most convenient form of money. A hefty quantity can be transmitted easily in the pocket with no one knowing it. It is very risky to carry on one's person Rs. 5,000 in cash, but not in notes. It possesses, in a very huge quantify, the feature of manageability which a money matter ought to have. In a very small bulk, it can contain a very large value. Think of a currency note of Rs. 10,000.
3. Homogeneous. One essential quality in money is that it must be exactly of the same type. Even amongst the coins there are high-quality and awful coins. But currency notes are all precisely analogous. It is, consequently, a very suitable media of exchange.
4. Stability. The worth of paper money can be kept even by appropriately controlling its issue. That is why there are many advocates of 'managed' paper currency.
5. Cheap Remittance. Money in the form of currency notes can be cheaply remitted from one place to another in an insured cover.
6.Fiscal advantages to the Government of the paper currency are undoubtedly very great, especially in times of national emergencies like a war. A modern war cannot be prosecuted by taxes or loans alone. All Governments have to resort to the printing press. In recent years, in India there has been great' inflation. We must remember that by this means our Government has been able to spend hundreds of crores of rupees on various ambitious programmes of development. Hence, within limits, the issue of paper money comes very handy to the government at the time of dire need.