Category All About Money

You would use a rouble in the Soviet Union, a Yen in Japan, a rupee in India and Pakistan, a drachma in Greece, and a guilder in Holland. They are all units of the monitory systems of those countries.

     The rouble, which is divided into 100Kopeks, was the name for silver bar money which was in use in Russia from the 14th to the 17th century. Peter the great set up the modern system of coins, and the silver bar money was abolished.

     The Yen was originally a gold coin, but was changed to silver. A one Yen coin is now made of aluminum and the five and ten yen pieces are made of nickel.

    The word rupee means “silver coin”. It came into use in 1542 when the Sultan of Delhi, Sher Sha, reorganized the currency. It was kept as a monitor unit and is now divided into 100 noye paise (new paisas). Large amounts of rupee have special names: a lakh is 100,000 and a crore is ten million rupees.

    The drachma, in Ancient Greece was a silver coin and also a measure of weight. There were 100 drachmae to one mina which weighted about one pound. The modern drachma is divided into 100 lepta.

        The guilder, which is the currency of the Netherlands and its overseas territories, is divided into 100%. This unit of currency spread to Northern Europe from Florence in Italy and is also used under the name of florin

          Money has always fascinated mankind from the time of Aristotle to the present day. Aristotle observed that man is a social being and establishes certain norms and regulations for their social interaction. Men employed money as a mode of exchange to facilitate such social dealings from their economical aspect.

          In the primitive societies, when people wanted to buy anything they had to give something else in exchange for it. For example, if a potter wanted to buy rice from a farmer, he offered him earthenware pots in exchange. The farmer would accept them because he needed pots. This was called the barter system which involved goods in exchange of goods. During those times goods served the purpose of money. But with the development of trade, the barter system could not meet the growing demands of a convenient exchange system for buying and selling. People started using token or symbolic goods in exchange all over the world. American Indians used beads of shells, Fijians used whale’s teeth and North Americans used tobacco in their exchange system. The Roman army men were provided salt for their services. But the topic of our interest is: when was coin first used as money? 

Continue reading “When did people first use money?”

The word ‘bank’ is derived from the Italian word ‘Banco’ which means bench. In the Middle Ages, Italians used to conduct their commercial transactions while sitting on the bench. Later, this very word ‘banco’ underwent changes and became ‘bank’. Now, all the countries of the world have banking systems. Do you know how the banks started?

               Initially money lending and banking was done by the Jews and later on by goldsmiths. Merchants, in fact, paid the goldsmiths to look after their surplus cash. These goldsmiths gave receipts like a bank note to the merchants for the cash, they deposited with them. Not only that, they could lend a part of that money to others earning an interest from them. They could thus make extra money. A part of thus earned money, they gave to the merchants as an incentive to deposit money with them. This was the starting point of the savings bank or the deposit scheme in the banks at a later date.

                 Merchants also wrote letters to the goldsmiths to pay another merchant from their deposited money. This amounted to issue of “cheques”. The modern banking system started in Venice in 1587, and in the same year the “Banco di Rialto” was established. People could deposit money in this bank and could draw when they needed it. In 1619 ‘Banco di Giro’ took over the management of this bank. People could deposit even their gold and silver items in this bank for which the bank issued receipts. These receipts were used as currency notes.

                 The first bank in the U.S.A. was set up in Philadelphia in the year 1782. In England, the first bank was started in the year 1825. In India, the first bank, the Presidency Bank of Bombay, was established in 1804.

                  However, the first full-fledged Indian bank was the Punjab National Bank, which was started in 1894. The Government established the Reserve Bank of India in April 1935. This bank issues all the currency notes and coins for circulation in the country. Today, a large number of banks have been established in all the countries of the world.

                  In the beginnings, Banks had only two functions, namely to receive money and to give loans on interest. Nowadays, Banks serve many other purposes such as giving credit cards and foreign currency to people going abroad. Banks also provide us the facility of lockers to keep our valuable jewellery.

        By 1717, the British started to produce Mughal money at the Bombay Mint, with permission from the Mughal emperor Farrukhsiyar. The British gold coins were called ‘carolina’; ‘anglina’ was the silver coin, and ‘copperoon’, the copper coins. Tinnies were tin coins.

           A century later, the British rose as the most dominant power in the country. In 1835, they enacted the Coinage Act for uniform coinage. As a primary step, coins with images of William IV were issued in the same year.

Continue reading “Why is it said that the arrival of British changed Indian coinage system?”

Even though the British left India in 1947, the coins they issued remained in use till 1950. The first coins made since then belonged to the ‘anna series’. They were traditional in design, and followed the metric system.

Introduced on August 15th, 1950, the coins of the anna series replaced the king’s portrait with the lion capital of the Asoka pillar. It represented peace and non-violence. The one rupee coins also had a sheaf of corn on one side. Sixteen annas together made a rupee.

The pillar and the corn images were among the many Indian motifs that appeared on the coins, post-independence.

The introduction of the ‘decimal series’ took place in September 1955, with the Indian Coinage Act. Thereafter, a rupee consisted of 100 paisas instead of annas or pice. You could say annas and pice were ‘demonetized’.

The naya paise were minted in the denominations of 1, 2, 5, 10, 20 and 50. In 1964, the word ‘naya’ was dropped.

Nickel, cupro nickel, bronze and nickel brass were the metals used in coins till 1963. Later, coins made of aluminium were used. Since 1992, coins were minted mostly in stainless steel.

All these coins came out in different shapes. While most of them were circular, some were also hexagonal, 8-scalloped, and square in shape.

In June 2011, all the coins in the denominations of 25ps were taken out of currency.

The country’s first bimetallic coin – of Rs 10 – was released in 2005 under theme of ‘unity in diversity’. 

         Commemorative coins are usually issued to pay respect to an important person, or to celebrate a special occasion.

         The first such coin in modern India was issued in 1964. It had a portrait of Jawaharlal Nehru, and was issued to commemorate his birth anniversary. Since then, many coins have been issued by our country for general circulation. Coins from 5 paise to Rs 150 have been made for commemoration. Most of them were not for circulation, but for preservation as specimens.

             In 1985, the country issued three coins dedicated to Indira Gandhi. To celebrate the 75th anniversary of the establishment of the International Labour Organization, India issued three coins on October 27th, 1994. In 1996, a commemorative coin was issued on the World Population Day.

            There were also coins minted to celebrate the platinum jubilee of the Reserve Bank, the 150th birth anniversary of Rabindranath Tagore and the 1000th year of establishment of the Brihadeeswara Temple. In 2016, coins were issued to mark the 150th anniversary of the Allahabad High Court.          

          You might know by now that the rupee is a currency used by many countries in the world, including Sri Lanka, Nepal, Pakistan, and the Maldives other than India. But do you know where the word ‘rupee’ came from?

          ‘Rupiye’ is known to have been derived from the Sanskrit word ‘rupaa’ which means ‘silver’ or ‘made of silver’. Further, ‘rupaa’ is believed to have sprung from the Dravidian word ‘uruppu’, which means a ‘member of the body’.

          References about ‘rupiye’ first appeared in ancient texts. Arthasastra, a legendary work by Chanakya mentions ‘rupyarupa’ in the context of silver coins. He also used the terms suvarnarupa, tamararupa and sisarupa for gold, copper and lead coins.

          However, the introduction of ‘rupiya’ to Medieval India was made by the Afghan ruler Sher Shah Suri, sometime between 1540 and 1545. Rupiya was the term used for silver coins weighing 178 grains. The coin remained in use throughout the Mughal and the Maratha periods, as well as in the British India.

       Over the years since its introduction, the Indian rupee has gone through significant changes. We saw that the rupee coin was first introduced by Sher Shah Suri. During his time, 40 copper coins amounted to a rupee. This was accepted by the Mughals as well.

        The Bank of Hindustan was established by the British. In 1770, one rupee notes were published in the Bank of Hindustan. Following this, some private banks too issued banknotes.

        In 1861, the Paper Currency Act was passed, making it a rule that only the government could issue currencies.

          In 1935, the Reserve Bank of India was inaugurated, and it took over as the government’s body to issue currencies. The first note it issued was that of five rupees, bearing the image of King George VI.

          The first note to be published after the Independence was a one-rupee note. Since then, many changes have come to currencies. A bank-note of 10,000 rupees was printed and circulated, making it the highest denomination issued. Over the years, many currency notes were demonetized, and new series were introduced. 

      We saw that the first bank note to be issued after the Independence was the one-rupee note with the symbol of the lion capital. Starting from 1951, inscriptions on notes were made in Hindi too.

      The following years saw many changes in currencies. Various themes were adopted, including the advancement of the country in science and technology. Even in the latest banknotes that appeared recently, there was a new theme Mangalyan.

      Many notes were introduced, and many were demonetized over the decades. In 1954, there were note of denomination including 1000, 5000, and 10,000. In 2010, the new currency symbol of rupee was introduced, that which we still use.

      All these notes, if you look at carefully, have an inscription of ‘Satyamev Jayate’. This was an addition made in 1980.

      In the latest banknotes issued in November 2016, there are a few more additions. The use of Devanagari numerals also marks a change from tradition.

        The series of banknotes issued by the Reserve Bank of India that bears the portrait of Gandhiji is known as the Mahatma Gandhi series.

        Introduced in 1996, this series replaced all previous banknotes that were valid till then, and became our legal tender. The first notes to be printed in the Mahatma Gandhi series were in denominations of Rs 10 and Rs 500.

        There are many features for the series, including a security thread, optical fibre, and the intaglio print. The embedded security thread in the notes can be seen as a vertical line when held against light. They also have optical fibres that glow when exposed to ultraviolet light. The number panels, on the other hand, are printed with fluorescent ink.

        You can guess why these notes are equipped with such security elements- to prevent counterfeit. But many notes were duplicated. So, as the next step, the government has issued the Mahatma Gandhi new series replacing the older one, from November 2016. The first notes in this series are of the denominations of Rs 500 and Rs 2000. 

        Star series notes, in its simplest definition, are replacement notes for errors in printing.

         You may be aware that banknote production is a one complicated process which involves several steps. Let’s try to understand it with the example of a Rs 100 note. They are usually issued in bundles of Rs 100 notes and each note is placed in a sequential serial order. During the process of production, especially during numbering, there could be errors that disturb the continuity of the series. These notes are then replaced. This is where notes of the star series are used.

           Star series notes are inserted, replacing defective notes in a bundle that is arranged in a particular sequential order.

           They are printed with a star symbol in the numbering panel. For example 9AA*034801. There is a prefix of three characters before the symbol, as well as a six-digit serial number that follows. The series was introduced by the Reserve Bank in 2006.

           There are many countries in the world that use the ‘rupee’ as their currency. This includes Indonesia, Mauritius, Nepal, Pakistan, Seychelles and Sri Lanka, apart from our own India.

             It would however be wrong to say that they are all one and the same. The value and denominations of these ‘rupees’ are different in all these countries. They depend on the respective country’s economy, and monetary policy.

             The units of currencies too are different in each country. While Indian and Pakistani rupees me further divided into ‘paise’, the unit in the Maldives is ‘rufiyah’. In Sri Lanka, they are ‘cents’. A Nepalese rupee, on the other hand, is equal to 100 paisa or four sukas, or two mohors.

            But the rupee sign, given as ‘Rs’, is the same in Sri Lanka, Nepal, Pakistan and the Maldives. Till July 15th 2010 India too used this as the currency sign. 

       Ever noticed a small clause written on our banknotes? If you haven’t, take a close look at it. It is the promissory note, along with the signature of the RBI Governor.

         Let’s take an example. The promissory clause printed on the banknotes that read as ‘I promise to pay the bearer the sum of one hundred Rupees’ means that the banknote with you is a legal tender for the given amount. It is also the promise made by the Governor of the central bank.

            The clause acts as a written guarantee made by the bank regarding the genuineness of note, and its value. It is invariably seen on all banknotes printed in the country. 

           Although money lending and other kinds of informal transactions existed during ancient and medieval times, banking in its modern sense originated in India only in the last decades of the 18th century.

           It was the Bank of Hindustan that marked a beginning to the banking trend in 1770. The General Bank of India came later, in 1786, but it failed within five years. The Bank of Hindustan too closed down between 1829 – 32.

           In spite of the initial failure, banking in the country flourished after the establishment of the three powerful banks -the Bank of Bengal in 1806, the Bank of Bombay in 1840, and the Bank of Madras in 1843. These were the Presidency banks that later merged to form the Imperial Bank of India in 1921.

           Upon the Independence, it was subsequently transformed into the State Bank of India that we now have, the oldest and the largest bank in the country.

Continue reading “Why is it said that banking in the modern sense developed in India in the 18th century?”

         The Reserve Bank of India was founded on April 1, 1935, constituted under the Reserve Bank of India Act 1934. It was a shareholder’s bank then, and remained so until its nationalization in 1949. It has been fully owned by the Indian government ever since.

         It was the financial troubles caused by the First World War that led to the establishment of the Reserve Bank. It is believed that the British were forced to transfer the responsibility of central banking to Indian hands, due to financial, as well as political reasons.

          The main idea behind the formation of the bank was to make it a regulatory body to issue banknotes, and to secure the country’s monetary stability. It also operated the currency and credit system, and still continues to do it.

           The bank was established on the recommendation of the Hilton-Young Commission. The first logo of the bank was inspired from the East India Company’s double mohur.

           Did you know that the bank was also the currency issuing body for countries like Burma and Pakistan? Till 1942, the Reserve Bank issued currencies to Burma, today’s Myanmar. It was also the banker to the Government of Burma till 1947. The following year, in 1948, the RBI stopped rendering currency notes to Pakistan too. 

          The Reserve Bank of India has the sole right to produce currency notes of all denominations in the country. Other than this, it has many other functions.

          The RBI is responsible for formulating, implementing, and monitoring the monetary policies in the country. It also means that the bank takes care of maintaining price stability within the country.

          Acting as a governmental agent, the RBI distributes coins all over the country. It is also known as a ‘banker’s bank’, as it provides aid to all other banks functioning in the country. Every bank has to have a license from the RBI for operating within the country.

          The RBI performs me-chant banking functions for the central and state governments, and manages the country’s foreign exchange too.

           The bank is also responsible for exchanging and destroying currency notes that are unfit for circulation. These are just some of the functions of the RBI.

         Yes, it is the Reserve Bank of India that issues banknotes needed for the country. But have you ever wondered on what basis they issue the currency notes? Most certainly, on a demand-basis.

         The value and amount of banknotes to be printed are decided by the RBI. Based on the demand for a particular currency, it is issued and circulated.

          Let us take an example from the present day situation. People are in great need for currency notes in larger denominations like 500. To make up this need, the RBI note issuing unit in Mysuru stopped printing all other banknotes, and began to produce the new series of Rs 500 exclusively. This is what is meant by demand-based production.

            The bank also issues currency depending on the number of soiled notes that are returned to it.

            The new banknotes are distributed through various RBI offices located in Ahmadabad, Belapur, Bhubaneshwar, Kolkata, Bangalore, Chandigarh, Hyderabad, Guwahati, Chennai, Lucknow, Kanpur, Bhopal, Patna, Jaipur, New Delhi, Nagpur, Jammu, Kochi, Thiruvananthapuram and Mumbai.

            These offices receive and ensure the circulation of fresh banknotes issued by the central bank. 

         Broadly, the Indian banking sector can be divided into two types of banks- scheduled and non-scheduled.

          Scheduled banks are those listed in the 2nd schedule of the RBI Act, 1934. As per law, the paid up capital and collected funds in these banks should not be less than Rs 5 lakhs. They are also eligible for loans from the central bank.

          Scheduled banks are further classified into nationalized banks, the State Bank of India and its associate banks, regional rural Banks (RRBs), foreign banks, and private banks. Some of the state and urban co-operative banks too come under this category.

          Allahabad Bank, Bank of India, Canara Bank, Indian Bank, Punjab and Sindh Bank, Punjab National Bank, Union Bank of India, Vijaya Bank, and Dena Bank are among the 27 nationalized banks in the country.

         State Bank of Travancore, State Bank of Mysore, State Bank of Hyderabad etc. are the associate banks of the State Bank of India. It was in 1960 that SBI took over control of these associate banks.

         The IDBI Bank and the Bharatiya Mahila Bank are other two important public sector banks functioning in the country.

Continue reading “What are the major types of banks existing in our country?”

         Until the 1960s, all banks except the State Bank of India remained under the ownership and management of private persons. By then, banks had become an important tool for the development of economy.

         In a sudden and unexpected move that marked a major change in our history, the then Prime Minister Indira Gandhi announced the nationalization of 14 commercial banks with effect from the midnight of July 19th, 1969. These were the banks that managed around 85 per cent of the country’s deposits.

         One of the biggest changes caused by nationalization was equipping banks to work for social welfare. Sensitive sectors like agriculture and rural industries were greatly benefitted by the move.

          Nationalization helped improve the public’s confidence in banking. Altogether nationalization strengthened India’s banking network.

         The second phase of nationalization took place in 1980, when six more commercial banks were nationalized.

         In its literal sense, ‘liberalization’ means relaxation of restrictions or regulations. It was a policy adopted in our country almost two decades ago. It was introduced in the 1990s in our banking sector too. Manmohan Singh was the finance minister then. So, what exactly did this process mean?

        Liberalization as a policy meant the removal of some restrictions imposed by the government on its various sectors.

         The move towards liberalization not only enhanced the growth of our economy, but also boosted our banking system.

          Till then, there were strict regulations on many matters including the interest rate, lending, and foreign participation.

          With liberalization, many private banks were given license to operate in the country. These banks including the ICICI Bank, Induslnd Bank, HDFC Bank, Axis Bank etc are popularly known as the new generation banks. Contributions from the public sector, private sector and foreign banks together made the system stronger and stable. 

As the name suggests, co-operative societies are groups working based on the principles of co-operation, joint ownership, mutual help, and democratic decision making.

Banks formed by these societies, popularly known as co-operative banks, are thus, small financial entities created for banking purposes by persons belonging to a locality, or professional community, or even by those who share common interests.

Operating both in urban and rural centres in our country, co-operative banks provide banking services like savings and loans to members as well as non-members.

Although they are smaller than commercial banks, co-operative banks have been successful in financing areas under agriculture, personal finance, self employment, small scale industries etc.

The banking system has a three-tier set up. The state co-operative bank is at the apex level, the district co-operative bank is at the district level, and primary co-operative societies are at the rural level.

Compared to others, these banks provide a little higher rate of interest on deposits. They mainly work on the principle of ‘no profit, no loss’. Anyonya Sahakari Mandali, established in 1889 in the province of Baroda, is known to be the earliest known cooperative credit union in our country. They played a significant role in our economy. 

         Negotiable instruments are those that can be converted into liquid cash under certain conditions like that of a cheque.

         The transactions of these instruments in our country are regulated by a law titled the Negotiable Instruments Act, framed in the year 1881. According to this, the three negotiable instruments that can be used are – a promissory note, a cheque, or a bill of exchange.

         The Act is quite important to our banking sector as it gives statutory definitions for these three instruments as well as the conditions under which they can be used. Besides, a certain section of the Act – Section 138 – is a step towards justice.

         As per this section, if a cheque issued by someone is bounces due to an insufficient amount in his account, it is an offence. This section inserted later in 1988 was a major change in banking, because till then, there were no provisions to restrain a person from issuing a cheque without sufficient money in his account. 

          This concept surely seems familiar to all of us, as it is now filling newspapers and newsrooms across the country.

          Demonetization is the legal act of making a currency invalid, and replacing it with a new one. In other words, it could be the removal of a particular currency, say Rs 500, from circulation, and issuing a new one of equivalent value or denomination. Demonetization also happens when the currency of a nation changes.

          Many instances of demonetization have taken place in the world. One classic example would be the withdrawal of currencies in countries under the European Union to replace them with the euro. However, it was not a sudden and unexpected move. People in those countries were given enough time to convert the older currencies to the euro in order to ensure a smooth transition.

           Such a move could definitely affect people, but as a process, demonetization has proved effective in controlling counterfeiting and black money in any country. 

        Many countries in the world have faced the process of demonetization at different periods. Some succeeded and others ended up in failure. One such failed attempt happened in the erstwhile Soviet Union in 1991.

        Under the leadership of Mikhail Gorbachev, a sudden monetary reform was initiated on January 22nd. At around 9 pm, televisions announced the President’s withdrawal of the 50 and 100 ruble banknotes from circulation. The move was to control black money and counterfeit. However, it created a stir in the public. Some were able to make exchanges for the currencies with them but most of the people couldn’t, because the exchange had many limitations. There were only three days given for exchange, and only 1000 rubles were to be given to a person.

        Although the bid to control malpractices succeeded to an extent, demonetization had a huge negative effect. Within months, consumer prices increased, and people started losing jobs. Within eight months, Gorbachev faced a coup.

        The monetary reform of 1991, as it is popularly called, later led to a redenomination of the ruble in 1998.

Australia is a country that once successfully demonetized its currency. In 1996, the country replaced its banknotes with their plastic or polymer equivalents. The move was intended to fight financial malpractices that were growing rampant.

            Like all other countries, Australia too, was facing severe problems caused by counterfeit currencies and black money. It was then that the Reserve Bank of Australia developed polymer notes with better security features.

            The initial steps of the process began in 1988, when the bank issued a commemorative 10 – dollar polymer bank note. Later in 1996, all the existing currency notes were made invalid and the new ones entered circulation. They came in all denominations from 5 to 100 dollars.

            As the withdrawal and replacement happened in various steps, it was not too difficult for the country to switch to a new system.

            In spite of the initial costs incurred to manufacture the new notes, the move was successful and it also helped in making the country business friendly.

            The concept of demonetization is not something new in modern India as it had gone through the same twice before – in 1946, and 1978.

            Did you know that we once had the banknotes of Rs 10,000? Those notes were the largest currency denomination printed by our central bank, the Reserve Bank of India. It happened in 1938 and in 1954.

            The year before the country gained independence, banknotes in denomination of 1000 and 10,000 were taken out of circulation. This move that came in January 1946 was as part of the country’s effort to prevent black money. It is said that the invalid notes were sold or exchanged at 60 to 70 per cent of their price. The sudden withdrawal of the currencies had become a ‘death blow’ to tax evaders.

            However, those banknotes along with that of Rs 5000 were later reintroduced in 1954. The second instance of demonetization in modern India happened in January 1978. The government headed by Morarji Desai, withdrew from circulation notes of Rs 1000, Rs 5000 and Rs 10,000. The reason behind this was to stop the circulation of counterfeit currencies.

            The currencies of Rs 500 and Rs 1000, however, returned to circulation later. In 1987, the Rs 500 note was reintroduced and the latter, in 2000.

You might have heard of the recent withdrawal of higher denomination currencies in the country. This happens to be the third instance of demonetization in modern India. With this, old banknotes of Rs 500 and Rs 1000 have become invalid and the government, with the help of the Reserve Bank of India has started issuing new currency notes in the denomination of Rs 500 and Rs 2000.

       As a result of this major move, banknotes belonging to the Mahatma Gandhi series that we now use will be replaced by the Mahatma Gandhi new series. However, the notes of Rs 100, Rs 50, Rs 20, Rs 10 and Rs 5 will remain unchanged.

       The announcement of demonetization made by the Prime Minister Narendra Modi on the night of October 8 over television has been considered historic by many people.

       In what is regarded as the most important cleanliness drive in the country, the sudden step is expected to curb counterfeit notes used for various criminal activities like terrorism, and corruption. The move is also expected to make the country more digital. 

      The most important argument in support of demonetization is that the process will help curb financial malpractices in the country.

      This includes money for which tax is not paid or in other words, black money. It is believed that a considerable amount of black money is stored in denominations of 500 and 1000. Hence, by making them invalid, users will be forced to get rid of them. This will also help the government to find out the sources of black money circulating in the country.

       As per the data from the Reserve Bank of India, the supplies of banknotes in all denominations have increased by 40 per cent in the past few years. But the number of currency notes in the denominations of 500 and 1000 has increased more than that. The reason given for this is the use of counterfeit notes.

      These notes are used for many illegal activities like drug trafficking, financing terrorism, corruption etc.

      Demonetization is also expected to fight such crimes too.

      Besides, the process takes India a step ahead to the digital world. So in spite of the difficulties, many economists say that demonetization will help the country in the long run. 

          One of the biggest arguments against the move is that violators and tax evaders do not always hoard money in 500 and 1000 notes- most of it is either in the form of assets or investments. In the case of liquid money too, they could possibly be deposited in the Swiss banks, or in other banks through false accounts, or benami accounts. Hence, critics believe that black money cannot be totally controlled with demonetization.

          Yet another complaint is that there was not enough planning, or time given before making such a historic change. Such a sudden and drastic move as this in India has caused much inconvenience to the people.

          People in many parts of the country, especially in rural areas, had a tough time as they could not exchange their currency immediately. There are villages without banks, and people without bank accounts.

             Banks and other financial institutions were running without enough currencies of 100s, or the new 2000s, to give in exchange.

             People in hospitals who could not manage to get the equivalents, were among the worst affected.

             Even as demonetization intends to wipe off financial malpractices, many fake notes of the new Rs 2000 note were found circulating immediately after they were introduced. This made it clear that counterfeiting is still possible.

          Canadian dollar is the fifth most valuable reserve currency in the world. It has also become popular among the central banks all over, thanks to the country’s strong and stable economic system.

          One of the major attractions of the currency is the presence of the imagery of a bird called loon on the one-dollar coin. The Canadian dollar in general, is nicknamed as ‘loonie’ for this reason. The first loonies were circulated on June 30th, 1987. Interestingly, when the two-dollar coin was introduced in 1996, it was called ‘toonie’, referring to ‘two loonies’.

          In April 1871, the Canadian Parliament passed the Uniform Currency Act which replaced all the other currencies with the present day one.

          Set up in July, 1934, the Bank of Canada acts as the central bank in the country. Under its contract, banknotes are printed by the Canadian Bank Note Company, and coins by the Royal Canadian Mint.

Think of a situation in which you have no place other than your home to keep your valuables like money, jewellery etc. It’s tough!

But there was indeed such a time in history when people did not have many safety options. It was at this time, sometime around the 3rd century BC, that temples in Mesopotamia started accepting precious things from people for safe keeping.

Since these temples were already wealthy, they could also give loans to the needy. It is believed that the first steps of banking began here.

History notes that there were ‘grain banks’ in Egypt to store and loan grains, which were as important as currencies. Under the rule of the Ptolemies, government granaries formed a network of grain banks to help people. They also had a central bank in Alexandria to keep a record of transactions. This acted as the first governmental bank in the country.

Later, during the Middle Ages, trade and businesses started flourishing, and people earned more. It was then in Italy that moneylenders began to set up stalls called ‘bancas’. The idea was to accept coins and exchange currency.

In 17th century London, banking began when people deposited currencies and gold with goldsmiths. This was because the goldsmiths already had safes and locks, so they thought their valuables would be secure there. Slowly these goldsmiths started moving from town to town to transfer money. Later, they came to be known as goldsmith bankers.

        We all know that a bank is perhaps the safest place for us to keep our valuables. But have you ever wondered how they work? Let’s find out.

        For any favour that you seek from a bank, you need to open an account in the beginning. You deposit money in this account, which later goes into a larger pool of money that is formed by similar deposits.

        To give you more details about your account, the bank officials will issue a pass book, and a cheque book.  The latter helps you withdraw money from the account.

Continue reading “How do banks work?”

         Every bank offers different kinds of accounts for its customers. Some of them are the savings account, fixed deposit accounts, recurring deposit accounts, and current deposit accounts.

        The most popular among the four is the savings account. Here, if one deposits an amount, he will earn a small interest from the bank. The user is also free to withdraw money from it whenever needed. But the withdrawals are subject to certain conditions.

        In the case of fixed deposits, the deposited amount has to remain in the account for a fixed term, say five years. This account is used mainly for saving larger sums of money. The interest a bank gives for this account too, would be more.

        Another type is the current deposit account, meant mainly for businessmen. Here, there is no limit for depositing or withdrawing money.

        Recurring deposit accounts are for smaller savings. They are used by people who deposit a specific amount for a small period, say six months or one year, and earn it back with a small interest. 

Centuries ago, when the concept of banking arose, cash transactions were made manually. That means that one had to literally meet the other and deliver money. Later the system improved, and money was transferred between accounts. Even so, a person responsible had to move around with money, and it took days to transfer.

          Today, if one wants to make a transaction, it will take just minutes, thanks to the Internet. Some of the most common payment methods involve technologies like debit card, credit card, and e-banking. And for people who are not familiar with Internet technology, there are ways using cheques or demand drafts that is DDs.

           In the case of debit and credit cards, money is transferred directly from the user’s bank account, to the one it has to be given to. For example, when you go shopping, you can pay the bills using these cards, instead of giving money. The money gets debited from your account and goes to the shopkeeper’s.

           E-banking also helps in the same way, where bill payments can be made online. For instance, while paying your phone bill, e-banking helps. 

        All of us may have at least once got bank-notes that are torn or soiled. Have you ever wondered what is done with such currencies? Let’s tell you.

        As per the rules set by the Reserve Bank of India or RBI, such currencies can be exchanged in any bank even if you don’t have an account there.

        The banks which accept these notes will later submit them to the RBI. The central bank would then categorize these notes. Some of them are reissued in good shape. But some others, which cannot be repaired, are cut into tiny pieces so that they never get back into circulation.

        This happens in the case of coins too. The reusable ones are issued again. The others are melted. 

        You must have heard about the concept of inflation from your parents or teachers. Let’s keep it simple inflation is a general rise in the price of goods and services.

        An example for this is the increase in petrol price. Till a few years ago, it cost less than Rs. 40 for a litre of petrol. But today, the price has reached Rs. 70. This rise is caused by inflation, because of which, the value of goods go up.

        This happens due to many reasons. Some of them can be sudden wars, high wages, uncontrolled spending by the government, or even that of families etc. But the impact falls hard on all of us. The prices of all things that you need in your daily life increases. That means, money more than what we already have, will be required to meet our expenses.

        The annual rate of inflation is usually calculated in percentage. If the rate is 5 per cent, it means the price of something is 5 per cent higher than it was a year ago. 

         Deflation is the opposite of inflation. It causes a decrease in the price of goods and services in a country. This in turn, helps consumers buy more than what they could before, with the same amount of money.

         So is deflation a good phenomenon? Absolutely not. One of the major problems caused by deflation is that it always leads to lesser demand for goods and services. So naturally, their production also goes down. With this, many people lose their jobs or their salaries get cut. This in turn badly affects the economy of that nation.

         Again, what is the use in having lots of money but not enough goods to purchase? So, when prices fall in deflation, it does not help people at all. Deflation occurs when the government reduces its expenditure or when the citizens start spending less. However, it is not as common as inflation. 

         The term ‘Swiss banks’ may seem familiar as they are often quoted in news reports. However, they are not always famous for the right reasons!

           We have seen that Switzerland is considered a stable country with an equally stable economic system. This inspires investors across the globe to make investments in this country.

           Yet another reason is the rule of bank secrecy that the country has maintained since the Middle Ages. That is, because of the privacy and protection given by the banks, details of an account holder cannot be accessed by government authorities. In some cases, the account holders are identified by certain numbers, and not even using names.

           It was continuously reported that banks in Geneva and Zurich served as safe places for corrupt people with hidden money, tax evaders etc., because nobody could track their accounts. It was as per the Banking Law of 1934 that Switzerland maintains secrecy in its banking system.

           However, recent changes in the bank rules have made things easier than before. However, Swiss banks are still not as transparent as those in other countries.

A bank run occurs when a large number of customers withdraw money from their accounts simultaneously, fearing that the bank may collapse. This creates a big problem for the institution, because mostly it keeps only a small fraction of its deposits as cash on hand.

Economists note that as a bank run progresses, it generates a momentum. More and more customers withdraw cash. Such situations can arise even from small rumours about bank collapse. In the worst case, the bank’s reserves will turn insufficient to cover the mass withdrawal. The bank is then destabilized and faces bankruptcy.

The Great Depression contained several banking crises, consisting of runs on multiple banks from 1929 to 1933.

Whenever a bank runs, people in other banks too start withdrawing money. On a large scale, this can affect the country. So, governments all over the world have taken measures to avoid this danger. 

       Recession is not something we hear about in usual conversations. But whenever it comes up, we know that the situation may not look good.

       In simple terms, recession means a slow down or temporary collapse of business activity. It affects not just individual business ventures, but countries too, very badly. At the end, their economies fall. There are many things that come along with it- unemployment, decline in productivity, change in social lives of people etc.

       Recession at its initial level takes place when supply of something happens to be more than its demand. Let us put it more simply. When an economy expands, businesses too improve. They hire more workers; build more factories, set up costlier machines. But what if the demand for their product is very less? The business ends up in a big loss. Slowly, they close the factory.

           This is what contributes to a bigger danger named recession in a country. Trade markets, agriculture, and all sectors that help a country to get affected with recession. However, the common man is the biggest victim of it all. In just a matter of days, he might lose his job. This affects his family. Recession at its worst leads to economic depression, which is a dead end to the growth of a country. 

         An automated teller machine, or ATM, is considered to be one of the biggest inventions of the past century.

         While out on shopping with your family, you might have seen your parents entering small booths called ATM counters and withdrawing money easily. It is exactly for this, for making things easier that they are considered to be a great invention. ATMs help users acquire cash anytime anywhere.

         They are machines for electronic telecommunication that helps, say customers of a particular bank to withdraw money without having to go to that bank. Now you know the ATMs are set up by the respective banks.

          When you open an account with them, the banks give you an ATM card. This plastic card has a magnetic stripe and a chip containing a unique card number and security information of your bank account. At first, you insert this card in the ATM machine, and type your pin number, which is a kind of password to enter the account.

          The machine reads the details on your card, and connects to your account. It then delivers the money you ask for. ATMs also help in checking the balance amount in your account.

           These days there are Cash Deposit Machines or CDMs for some banks, which help customer deposit money without going to a bank. What a leap of progress! 

Mobile banking is one of the facilities which a bank or a financial institution provides to its customers. With this, one is able to make money transactions through a mobile device like the mobile phone or tablet. A step ahead of the ATMs, this type of banking makes it even easier, as the customer can use the service even sitting at home. Usually, it is active on a 24-hour basis.

Mobile banking uses certain softwares that are also called ‘apps’, provided by a financial institution for the purpose. Transactions that involve cash are however, not handled in mobile banking. That is, if one has to withdraw or deposit money, he has to go to an ATM, or to the bank itself. Mobile banking helps when one has to make bill payment or fund transfer from one account to another.

Continue reading “Why is mobile banking so popular?”

      Internet banking is one of the most popular methods of banking today, used by people across the globe. It is also known as e-banking or online banking.

       As the name suggests, it is an electronic payment system provided by the banks in general to conduct a wide range of transactions through their website.

       Like all modern kinds of banking, this one too enables transfer of money from account to account and check balance all this through a computer.

        To use this facility, customers need to first activate the option of e-banking. Websites of banks differ from each other, but in general, management of accounts are easy in net banking. The customer should at first log onto the bank’s website, and enter the user ID as well as password. He is then automatically guided to the page where he is given different options for transactions.

        Banks use various security measures to make sure that the technology is not misused by fraudsters. 

         There are different methods of money transfer in banks today. Let’s look at a few of them.

         RTGS or Real Time Gross Settlement System is one way where funds can be transferred between two banks located anywhere that has enabled RTGS. As the name suggests, transfer happens in real time, and there is no delay involved. Users can transfer large amounts starting from Rs 2 lakhs. There is no upper limit for transaction, through RTGS. Also, there is lesser risk compared to other modes of transfer, as it is done quickly and via the Internet.

         Yet another is the NEFT or National Electronic Fund Transfer, a nation-wide system which allows fund transfer from any bank branch to any other in the country. Any sum up to Rs 10 lakhs can be transferred through this system.

         Another service is the ECS, or Electronic Clearing Service which enables institutions to make payments such as salary, pension, bills etc. in an automated manner. EFT or Electronic Fund Transfer also helps transfer money from one bank account to another without direct handling of money.

           In simple terms, a credit card is a payment card issued by banks to its customers, to use for purchasing goods and services. It is like borrowing money from your bank for shopping, and then repaying it with an interest amount.

            This helps in many situations, especially when you are shopping. You need not carry cash along with you, but just have to give the shopkeeper your credit card. The money will be paid by the bank which issues the card. You can use the card not just for shopping, but paying for services too.

          Credit cards can be very helpful until you delay repayment. A late fee will be charged extra, as decided by the bank, and could possibly be very high! Smart users pay back the amount due every month, so that the debt amount doesn’t get too big.

          There is also a limit up to which money can be credited. It is fixed by the bank, depending on your ability to handle the debt. An intelligent use of credit card will help the customer. 

Similar to credit cards, debit cards are also issued by banks to their customers to help them purchase goods and services. But in their functions, these two cards are quite different.

While using a debit card, money gets deducted from the user’s bank account itself. One can use it for shopping and bill payment, in the same way that a credit card is used. But the moment a transaction is completed, money gets debited from his or her account. This also means that there is no need for repayment.

In most cases it is the same debit card that we use at ATMs for withdrawing money. These cards are used for online shopping too.

The card has a Personal Identification Number or PIN, which has to be used for carrying out a transaction. There are different brands of debit cards used in our country, all of them developed by private companies. Apart from these, the National Payments Corporation of India launched a new one named ‘RuPay’ in March 2012. It has been a success since its launch.

          Electronic commerce or e-commerce, in its simplest definition, is trade through the Internet.

         In other words, it helps exchange goods and services electronically, without the customer having to cross barriers of time and distance.

         For example, a customer can buy anything and everything through online markets- from groceries to advanced equipment. This can be done using debit or credit cards. Net banking is also a method of e-commerce.

        The major attraction of such online trading includes convenience, accessibility, and round-the-clock service. Some of them come with a lot of offers too.

        Yet another advantage is that the products of purchase reach the consumer wherever he is. Of course, there are drawbacks to online dealings. You see the purchased product in real life only when it reaches you.

        There could also be delay in delivery. And in case the customer service is not good enough, the shopping may end up in disappointment.

        Yet another threat is the increasing number of online frauds. The customer should always be alert while shopping online, although most of the established firms adopt strong security measures. 

       As the name suggests, representative money ‘represents’ something that is usually valuable. It is not money, but a symbol. So naturally, it does not consist of coins or banknotes.

       In other words, representative money is a token or certificate given in exchange for valuable things like gold, silver, oil etc. It is linked to the commodity that backs it and hence, is also known as ‘commodity-backed money’.

        The concept is believed to have originated with the ancient Sumerians. History goes that small baked clay tokens in the shape of cattle were used instead of real animals in barter system. Later, representative money gained popularity among pilgrims in the Middle Ages.

         In the 19th century, a lot of currencies acted as representative money as they were exchanged for a fixed amount of real money.

The international definition given for hawala is this – money transfer without money movement.

        Suppose you live abroad, and want to send money to your relative here in India. The proper way is to transfer the money through banks, or other authorized financial institutions. But they will exchange your dollar for rupees only at a rate fixed by the government. You may lose a lot of money there. Besides, the institution will charge an extra amount for delivery and service.

        In such cases, some people prefer to take a bigger risk. They approach a hawala broker, who will help transfer this money without much expense. They just have to be given some commission, which is low compared to legal methods. Also, it requires no paper work.

It is a system that works purely on trust. You will not get a receipt for the transaction, and any loss that occurs will be solely yours. Unlike a proper bank transfer, hawala brokers contact their counterparts in India or any country to which the money has to be transferred. The counterparts then deliver the amount to the concerned person. Hence, it is said that there is no actual movement of money. This is a crime in any country.

Hawala is illegal also because there is no tax paid on the amount transferred. It is used extensively across the globe to circulate black money, to provide funding for terrorist activities, and drug trafficking etc.

As they don’t operate through proper channels like banks, hawala money escapes governmental regulations, which has become a serious cause of concern. Yet another threat is that hawala is often linked with equally serious crimes like murder, kidnapping etc. 

As we know, counterfeit money is duplicates or imitation currency produced illegally in a country. The use or production of it amounts to fraud.

       It is believed that counterfeiting is as old as currency itself. Even coins were duplicated in ancient times, with base metals instead of pure gold and silver.

       As time passed by, newer methods were devised, and counterfeit became a big threat to countries across the globe.

       One of the most dangerous effects of money duplication is the reduction in the real value of money.

        Yet another is the increase in price of commodities. Suppose you are a trader and you get fake currencies from your customers. You take it to a bank, and find out that they are not real. You may be innocent, but you are not going to get the money reimbursed.

        Increase in prices, is also caused by the fact that there is an abundance of money being circulated in financial markets-even though some of them are duplicates. In such conditions, the economy of a country starts to collapse. In India, the government has taken various measures to control counterfeit, the latest being the withdrawal of Rs 500 and Rs 1000 notes.

        Considered as one of the earliest mass forms of coinage, silver currencies of varied shapes and sizes have been used for more than 1000 years.

        Among the earliest civilizations to use silver was the Mesopotamian, where payments were often made in terms of silver. Ingots of silver mass were cut into scraps or thin wires or even rings of certain weight. It was considered a symbol of power and wealth to use silver. As there was no production of the metal in the land, it had to be imported, which made it all the more pricey.

       Greeks too, are known to have used silver coins as currency. They were manufactured by hammering the metal.

       But, soon after the Roman invasion of Greece, minting of coins came to a halt, and Roman coins took over as currency.

       The presence of silver coins can be found in almost all civilizations. 

          It is believed that coins came into use during the 7th century BC. Coins appeared in different forms in different parts of the world, and it is quite difficult to trace their origins.

          The most widely accepted version of history holds that coins first appeared in Lydia, which is part of the present-day Turkey. They were made of ‘electrum’, a naturally occurring alloy of gold and silver, and had a design on one side.

           In the same era, coins were developed in the Indus Valley too, out of silver. They were of a standard weight, and were punched multiple times. It is believed that such coins were used till the 4th century BC.

              According to some historians, the first coins appeared in China sometime in the 7th century BC itself, but were in the shape of knives and spades. Later, they underwent a lot of changes in shape, size, and design. The Chinese cast coins in bronze with holes in the centre. There were sometimes strung together too.

             Yet another advancement that the era saw was the establishment of the weight-and-measure system. The first person to officially set standards for weight and money was Pheidon, the King of Argos, Greece. 

            History reveals that the money we see today has appeared in differing forms before- as cattle, as salt, as tea, as tobacco etc. But none of these lasted very long. Over a period of time, the need to develop currencies that were handy and long lasting arose. This led to the birth of metals as money.

            Different metals have been made use of by different nations. Chinese made Imitation cowries or mollusc shells out of bronze and copper. Metal money in the shape of knives and spades too, were made by the people there.

            It was in Lydia, a part of modern day Turkey that the earliest electrum coins appeared. Electrum is an alloy of gold and silver and Lydia was rich in its deposit. But their techniques were copied, refined, and used further by the Roman, Greek, Persian and other empires.

            Quite naturally, these metal coins had more inherent value than the previous currencies.

            By 500 BC, coins were stamped with images of gods and emperors by issuing authorities, and their values were fixed. Since then, coins have been widely used, and have also played a major role in making trade easy. 

          Giro was a mode of banking first used by Egyptians in the 4th century BC. The idea behind the system was to transfer money from one person to another. State granary units acted as banks then, and accepted ‘giro’ payments.

          What initially began as collecting the customers’ money to help them save it later became a form of banking. The granary authorities, in the course of time, helped the customer transfer their money to another person’s account.

           Such transactions were recorded in their storage books too, which formalized accounting. Large amounts of money could easily be transferred through the giro system. It is known that these banking (granary) units had a central bank in Alexandria.

            By 1619, Venice launched the Banco del Giro to facilitate payments from its creditors. By 1883, a concept of postal giro arose in Austria. The idea behind it was the same- direct transfer of money with the help of a centralized accounting office. But the banking system moved from granaries to post offices.

            By the mid 20th century, almost all countries in Europe had a postal giro service. 

          At a time when a tiny card can facilitate payments of all kind, it might seem strange that centuries ago, people used ‘tea’ as a mode of payment. But yes, some actually did!

         Tea money or tea bricks were used as means of payment in countries including China, Siberia, Mongolia, Russia and Tibet between the 9th and 20th centuries. They were leaves and stalks of tea plants, finely ground into brick forms of various sizes. They were also stamped with values that varied, according to the quality of the tea.

          In case of smaller transactions, the bricks were broken, and pieces of it given instead. The demand for these edible currencies was so high, that swords, horses, and other valuable properties were sometimes given in exchange for a certain number of bricks.

          Historians note that most of the tea bricks were made in China, and carried to other countries on camels and yaks. The popular belief is that the bricks were consumed in times of hunger, and also brewed as medicine. 

          Tobacco is something we have always been told to keep away from. It is hazardous to health, and can possibly kill its users. But ages ago, it was considered money, just like tea and salt.

          Starting from 17th century AD, tobacco had a major role as currency in American colonies. For its value on par with gold, tobacco was held as the safest and most stable currency in places like Virginia and North Carolina.

          In 1727, ‘tobacco notes’ became legal tender in Virginia, where the Legislature had already rated three shillings for high quality tobacco.

          As time passed by, almost all transactions including levies and fine were made in terms of the substance. The system went to the extent of estimating a person’s assets in annual pounds of tobacco.

          However, the price of tobacco fell in course of time, and it made way for other currencies. By mid 18th century, the tobacco-system was abandoned. 

       No diet can be complete without a pinch of salt. Not only does this mineral make our food tasty, but it also helps in preserving them. A healthy person should have an adequate amount of salt in his body to avoid many diseases.

       These are snippets of information most of us already know. But how many are aware of the fact that salt was once considered a form of money? Or that many global routes were initially established for the trade of salt?

        The use of salt as a way of payment came from the obvious reason that it is something Man cannot live without. This made the substance as precious as gold in earlier days. Believe it or not, there were times when merchants paid salt to buy slaves and other essentials. In Abyssinia, slabs of rock salt or ‘amoles’ were used for trade exchange.

        The most recent example of salt money was seen in Ethiopia, where people in remote areas used salt bars up till the 20th century.

        Now, one can guess how important ‘salt’ is in the history of mankind. The very word ‘salary’ is derived from the Latin word ‘salarium’ which means salt money. 

          Long before currencies came into existence, people used different mediums for payment. One such medium was shells. They were exchanged for the goods and services one wanted.

         The history of shell money dates back to 3500 BC. It is believed to have been used since then on almost all continents- America, Asia, Africa and Australia. But the shells would differ.

         History records that portions cut and polished from cone shaped shells were used by the Ancient Sumerians, who were among the first to use shell money. Native Americans, on the other hand, used long-shelled molluscs.

         Australian tribes too, are known to have used varied kinds of shells. Interestingly, each tribe had their own peculiar shell money. Hence, the ‘currency’ of one tribe was rarely accepted among others. 

        We have seen that people, long before the invention of currencies, depended on the exchange of goods and services for getting by. But what were the things worthy of transaction? Strange enough, there were goods ranging from feathers to gold!

        Hard to believe, isn’t it? Well, historians note that small figures carved out of gold were used by the Aztecs for exchange, whereas rings of gold, copper and bronze were used by the Egyptians.

        In countries like India, cattle were largely used as a means of making payment. Those with a larger number of cattle were considered rich then, just as we now consider people with substantial savings wealthy. Yet another item of exchange was rice, as used by the Chinese.

        However, some countries followed ways that seemed quite unconventional- as in Papua New Guinea where people used canine teeth for bartering, or Ghana, where they used quart pebbles, Yap Island where they chose to trade lime stone discs, and the Solomon Islands where they resorted to the exchange of feathers!

        Studies show that the items of trade varied from country to country. Bartering of slaves too, was considered a mode of payment in Ancient Rome and Greece. But as time went on, goods were slowly replaced by other forms of money like shell money and salt money. 

         Exchanging a toy for another, or a book for a new one, seems interesting. But what would happen if you were to exchange your essentials for things that were equally necessary? Such a transaction, called bartering, is where two beneficiaries exchange goods and services without giving or taking money.

         This system was in practice centuries ago, before the invention of currencies. What began as an exchange of goods for meeting daily needs, later developed to the exchange of craft and fur items for expensive silk materials, spices, perfumes etc.

          One of the main drawbacks of the system was that it depended largely on trust and need. There was no warranty for the goods one received, nor were they given a worthy exchange every time. Besides that it is very time consuming.