Money and its modern forms

Why everyone wants money. With money you can buy almost any good or service you want, so people prefer to be paid in money and then spend it. Think of a shoe maker who wants wheat. Without money, he would have to find a farmer who has wheat to sell and who also wants shoes. Both must want exactly what the other has: this is called the double coincidence of wants. In a barter system (swapping goods directly), you always need it.

Money: a medium of exchange. With money, the shoe maker just finds anyone who wants shoes, sells them for money, and then buys wheat from any farmer. Money works as an in-between step in the exchange, so it is called a medium of exchange. It removes the need for a double coincidence of wants.

Money through history. Before coins, many things were used as money. From very early times, Indians used grain and cattle. Then came metal coins of gold, silver and copper, used well into the last century. (The book shows punch-marked coins, Gupta coins, a Tughlaq coin and a gold mohur from Akbar's reign.)

Bank deposits. People need only some cash for daily needs. A worker paid at the end of the month has extra cash at the start of it. They deposit it in a bank account: the money is safe, and the bank pays interest on it. People can withdraw it whenever they want, so these are called demand deposits.

Cheques: money without cash. A cheque is a paper telling your bank to pay a certain amount from your account to the person named on it. For example, the shoe maker M. Salim pays his leather supplier by cheque. The supplier deposits it in his bank, and the money moves from one account to the other in a couple of days, with no cash used. Because demand deposits are widely accepted as payment through cheques, they count as money too, along with currency. No banks would mean no demand deposits, and so no cheques: modern money is closely tied to the banking system.