By Harpreet Kaur

Class- 10th A

Where all begins

1792 - 1750 BC: Money and banking originates in Babylonia out of the activities of temples and palaces which provided safe places for the storage of valuables. Initially deposits of grain are accepted and later other goods including cattle, agricultural implements, and precious metals.

T h e C o d e o f H a mmurab i i n c l u d e s l a w s g o ve r n i ng b a n k i n g o p e r ati on s - a ll c a r ve d i n s to n e !

640 - 630 BC The earliest coins made in Lydia, Asia Minor, consisted of electrum, a naturally occurring

amalgam of gold and silver .

Exchange of personal possessions

In addition to barter

Prototype of money

Fertility rites and beliefs

China, 1.200 B.C. (End of Stone Age)

In addition to knives and spades

Holes to make a chain

Base metals

500 B.C. in Lydia and Turkey

Gods and emperors to mark the value

China, IX-XV: 1 st paper currency as money

Inflation disappearance

1455:

* Arrival in Europe after years

, $, (1999)

Digital cash

Before the development of a medium of exchange, people would barter to obtain the goods and services they needed. This is basically how it worked: two individuals each possessing a commodity the other wanted or needed would enter into an agreement to trade their goods.
This early form of barter, however, does not provide the transferability and divisibility that makes trading efficient. For instance, if you have cows but need bananas, you must find someone who not only has bananas but also the desire for meat. What if you find someone who has the need for meat but no bananas and can only offer you apple? To get your meat, he or she must find someone who has bananas and wants apple.

The lack of transferability of bartering for goods, as you can see, is tiring, confusing and inefficient. But that is not where the problems end: even if you find someone with whom to trade meat for bananas, you may not think a bunch of them is worth a whole cow. You would then have to devise a way to divide your cow and determine how many bananas you are willing to take for certain parts of your cow. To solve these problems came commodity money, which is a kind of currency based on the value of an underlying commodity.
Money act as an intermediate in the exchange process. Currency is authorized by the government as medium of exchange.

The use of money spans a large part of our everyday life. In transactions, goods are being bought and sold with use of money. In some transactions, services are being exchanged with money. When both parties have to agree to sell and buy each others commodities this is known as Double coincidence of wants. In contract, in an economy where money is in use, money by providing the crucial intermediate step eliminates the need for double coincidence of wants. Once he has exchanged his goods for money, he can purchase other goods in market. Since money as an intermediate in the exchange process. It is called a medium of exchange.

Before the introduction coins, a variety of objects was used as money. For example, since the very early ages, Indians used grains and cattle as money. Thereafter came the use of metallic coins.

Modern forms of money is include currency- including paper notes and coins. The modern currency is without its own use. In India, the reserve bank of India issues currency notes on behalf of the central government. In India rupee widely accepted as a medium of exchange. It is accepted as a medium of exchange because the currency is authorized by the government of the country. No other individual or organisation is allowed to issue currency.

The other form in which people hold money is as deposits with banks. At a point of time, people need only some currency for their day-to-day needs. Banks accept the deposits and also pay an interest rate on the deposits. Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits. For payments payer can made a cheque if he has an account in bank . A cheque is a paper instructing the bank to pay a specific amount from the persons account to person in whose name cheque has made. Thus, demand deposits share the essential features of money. The modern form of money- currency and deposits- are closely linked to the working of the modern banking system.

There is an interesting mechanism at work here. Banks keep only a small proportion of their deposits as cash with themselves. Banks use the major portion of the deposit to extend loans. The difference between what is charged from borrowers and what is paid to depositors is their main source of income.

A large number of transactions in our day to day activities involve credit in some form or the other. CREDIT: It refers to an agreement in which lender supplies the borrowers with money, goods, services in return for the promise of future payments. Credit plays a vital and positive role as well as a negative role. Whether credit will be useful or not depends upon the risks in the situation & on whether there is some support, in case of loss. Creditin its negative role(debt-trap) In the rural areas the main demand for the credit is for the crop production. Crop production involves considerable cost on seeds, fertilizers, pesticides, water, electricity, repair of equipment etc.. Farmers usually take crop loans at the beginning of the season and repay loan after harvest.

Repayment of the loan is dependent on the income from farming. At times repayment of the loan becomes difficult and credit instead of improving the earnings, pushes the borrower into a situation from which recovery is very difficult & painful . this situation is called DEBT TRAP

- Interest rate - Collateral - documentation requirement. - the mode of repayment.

-Loans from banks and co-operatives Functions of Reserve banks. - Issues currency notes on behalf of the central government. - RBI monitors the banks are actually maintaining cash balance. - RBI collect information from banks, how much they are lending to whom, at what interest rate etc.

The informal lenders, traders, employers, relatives and friends etc. - There is no organization which supervise the credit activities of lenders. - They can lend at what ever interest rate they choose. - Their is no one to stop then from using unfair means to get their money back.

Banks are not present everywhere in rural India. Even they are, getting a loan from bank is much more difficult than taking a loan from the informal sources. In recent years, people have tried out some new ways of providing loans to the poor. SHG is one of them. A typical SHG has 15-20 members, usually belonging to one neighborhood, who meet and save regularly.