Money And Credit

Class 9 | Social Science — Economics | Unit 3

Class 9 Unit 3 Economics

Learning Objectives

• To know about the Barter system
• To understand about money and various transaction of money
• To know about the role of RBI
• To understand about the various types of credits and beneficiaries

Introduction

This chapter deals with the evolution of money over the years and its functions. It also elucidates on the role of the Reserve Bank of India. It throws light on Foreign Exchange, monetary aggregates and forms of credit. It further explains how technological advancements have made banking easy and swift in today's world.

Almost all things used by man have a monetary value. In addition to that, the pay given for labour, wages and services are all fixed on the basis of money. The taxes and duties are also paid in the form of money. We would have seen our parents planning the expenses at our home every month. The monthly income, pending expenditure, savings, payment of interest etc., are all measured in terms of money. Not only at homes, but also the budgets of a country or states are also framed on the basis of money. The Government, as well as, private institutions and industries calculate their financial status through money. Thus, money plays a predominant and inseparable role in all our lives.

3.1 Barter System

If there arises a question, "Has man always used money?", the answer would be 'no'. How? when did money enter into the lives of men? In this lesson, let us learn about the evolution of money over the years.

Ancient man hunted and gathered food. He lived in caves and forests. In later stages, he invented weapons for hunting and gathering food. Later, he invented fire and learnt to practise agriculture. He used mud to build houses and settle down in a place. and also to make earthenware. When the agricultural yield was high, they made handicrafts. When there was surplus in agricultural produce and other articles like earthenware, they exchanged it with people who needed them. For example, if a community had excess food stuff, they would exchange that with those who had excess pots. Likewise, when a particular grain grew in abundance in a region, it was exchanged for a different crop in another region. These articles which were exchanged through barter system can be termed as the first form of trade

3.2 Coins

The barter system flourished wherever civilizations thrived. This system was active not only within a civilization, but also among civilizations. This was the initial form of international trade. During archaeological excavations in Egypt and Iraq (Mesopotamia), articles used during the Indus valley civilization were excavated. As years went by, there were issues found in barter system. For example there were problems in the exchanging needed goods. A person who had paddy was in need of earthenware for instance. But, the person who had pots and other utensils was not in need of paddy. Thus, the needs of many people were not fulfilled. Measuring the quantity and value of the goods exchanged were found very difficult. To solve these issues, they fixed a common item with a standard value, for the effective exchange of goods. It was usually in the form of some metal. Metals were rare to find and could be maintained for a long time and never lost their value. Hence, the metals can be termed as the first form of money.

Do You Know?

During his rule (1540 to 1546) Sher Shah Suri set up a new civic and military administration and issued a coin of silver weighing 178 grams, which was termed the Rupiya. The silver coin remained in use during the Mughal period, the Maratha era and in British India as well.

These may be the reasons why metals were chosen. Gold, silver and copper were the metals used first. They were called ancient currency. Leather, beads, shells, tobacco, salt, corn and even slaves were exchanged as barter, says economists. The later Cholas allowed the traders to have their own army. Historical evidences state that during this period, small traders and producers gave credit to the Tamil traders to support their export needs.

3.3 Natural Money

The metals such as silver and gold gained importance gradually all over the world. So, these metals were used as standard value in the exchange of goods. This was called as natural money.

3.4 Paper Money

As days went by, issues arose because while trade prospered, there were insufficient reserves of gold and silver. Mines also had a limited reserve of these metals. An alternative was found and coins were made using metals with lesser value. These were used to buy and sell goods of lesser value. It was used as the money of the poor people. Hence these coins were printed in large numbers. Paper money came into being as the next stage. This money was without form and people started saving in banks. The Great Economic Depression was also prompted the saving habit of the people. Money has become an inseparable part of everyone's life today. It has changed its form in the economic front. Money transactions are done through many ways in the electronic world

The picture shows about:

1. BARTER SYSTEM 9000 B.C (B.C.E) During this period, exchange of goods was done through barter through barter system. Man exchanged the surplus goods that he needed. Grains, Cattle, salt were the goods that were exchanged.

2. COINS 1100 B.C (B.C.E) The Chinese have used small coins during this period These coins were made in bronze Countries bordering the Indian Ocean used shell as a medium of exchange.

3. CURRENCY 600 B.C (B.C.E) King Alyattes of Lydia announced publically that official currency will be used for trade. Lydia is a part of Turkey today This Transaction of money spread throughout the Mediterranean region.

4. GOLD COIN 1250 A.D (C.E) The Florin, a gold plated coin was introduced in Europe

5. MARCO POLO 1290 A.D (C.E) Paper money spread to Europe through the travels of Marco Polo

6. PRINTING OF CURRENCY 1661 A.D (C.E) When new paper money was printed in Sweden, it was not much welcome.

7. ELECTRONIC TRANSFER 1860 A.D (C.E) Through telegrame an effort was under taken to transfer money electronically

8. CREDIT CARD 1946 A.D (C.E) Join Biggins invented the credit card

9. MOBILE BANKING 1999 A.D (C.E) European banks introduced mobile banking

10. NFC 2008 A.D (C.E) Near Field communication (NFC) was introduced in Britain. In 2016, it came to india. It takes only about 7 to 8 seconds to transact money through NFC.

3.5 Electronic Transactions

One has to visit the bank and fill in a challan or produce a cheque to withdraw money from his account. Now this practice is gradually vanishing. Instead, one can easily withdraw the necessary amount from an Automated Teller Machine (ATM), with the help of an ATM debit card. One can easily withdraw the money needed at any time at ATMs located everywhere. A person can deposit money in their account without visiting the branch. Similarly, credit cards are also available, through which things are bought on credit and the amount can be paid later. Nowadays, instead of using cheques or Demand Drafts (DDs), online transactions through net banking are carried out. Through this, money is transacted to anyone who lives anywhere across the globe. Technology has advanced so much that even mobile banking is widely used nowadays.

3.6 Role of the Reserve Bank of India

A government has the responsibility to regulate money supply and oversee the monetary policy. Hoarding of money must be avoided at all costs in a country's economy. Only then money can be saved in banks. A major portion of the savings in banks are used for the development of industries, economic growth and various development schemes for the welfare of the poor. All the major and important banks were nationalised (1969) in India. The Reserve Bank of India (RBI) regulates the circulation of currency in India. The Reserve Bank of India started its operations on 1st April 1935. It was permanently moved to Mumbai from the year 1937. RBI was nationalised in 1949. 85 percent of the printed currency is let for circulation. According to the statistics available as on August 2018, currency worth of 19 lakh crore are in circulation. (source - Reserve Bank of India)

Do You Know?

Dr. B.R. Ambedkar's Ph.D. thesis on 'The Problem of the Rupee - Its origin and solution' was the reference tool and provided guidelines for the Reserve Bank of India Act of 1934.

3.7 Relationship between Money and Prices

There is a close relationship between volume of circulation money and the price of things. 90 percent of the products are manufactured with the main aim of sales or meant for services. Growing crops and production are done on a commercial basis, rather than on a subsistence level. This phenomenon also increased the importance of the market and money. The relationship between money and price is connected with the Monetary policy. There is a close relationship between the growth of money supply and inflation. Price controls play a very important role in a country's economic stability. This role is played by the Central Bank of our country, RBI in India. Currency is the medium of exchange in a country. The Indian currency is called the Indian Rupee (INR). In a country, the foreign currency is called foreign exchange. Purchasing capacity of all currencies in the world are compared using the US dollar as the standard currency. This value differs from country to country. Most of the international trade transactions are carried out in US dollar.

Activity Bank

Set up your classroom like a bank. With the help of your teacher, act as a Cashier, Branch Manager, Assistant Manager, customers etc. Prepare dummy challans for deposition of money, cheques, Demand Draft etc. Do the banking activities

3.8 Functions of Money

When money replaced the barter system, a lot of practical issues were solved. Money acts a medium of exchange, a unit of measurement, a store of value and a standard of deferred payments. It plays an important role in transactions.

Country	Currency
India	Rupee
England	Pound
European Union	Euro
Canada	Dollar
Japan	Yen
China	Yuan
Saudi Arabia	Riyal
Australia	Dollar
Malaysia	Ringgit
Pakistan	Rupee
SriLanka	Rupee

Activity Foreign Exchange

Let the teacher bring copies of Indian rupees and foreign currencies. Distribute the foreign currencies to pairs / groups. Let the students convert it into Indian rupees and collect the equivalent amount of rupees from the teacher. When all groups complete, the foreign currency can be given to another group in the next round.

Medium of Exchange

Money should be accepted liberally in exchange of goods and services in a country.

Unit of Account

Money should be the common, standard unit of calculating a country's total consumer goods, products, services etc. For example, if a book costs ` 50, it means that the price of the book is equal to 50 units of money. Money is used to measure and record financial transactions in a country.

A Store of Value

Money is used as a store of purchasing power. It can be used to finance future payments.

HOTS

How important is foreign exchange to one's country?

3.9 Credit

Farmers avail credit during monsoons for buying seeds, agricultural input and other expenses. Traders and small entrepreneurs need credit for their needs. Even large industries receive credit to take up their new projects.

Credit is available from:

• Formal financial institutions like nationalised and private banks and co-operative banks
• Informal financial institutions
• Micro credit is received through Self Help Groups (SHG)

As far as nationalised banks and co-operative banks are concerned the interest to credit is comparatively lesser and there is guarantee for the pledged goods.

Informal Financial Institutions

Informal financial institutions are easily approachable to the customers with flexible procedures. But there are issues like the safety of items pledged high rates of interest and modes of recovery. People who live in a particular place or those who are involved in a certain work join together as a group and start saving. These are called as Self Help Groups. The nationalised banks provide help to these groups through micro-credit. Credit given though Self Help Groups for street vendors, fishermen, especially women and the poor really make a difference in their life. In Tamil Nadu, all the banks have 10,612 branches, across the state They carry on a total transaction of around 15 lakh crore rupees during the financial year (2017-2018).

How is currency printed in India?

One rupee and two rupee notes were first printed in India in the year 1917. The Reserve Bank of India is empowered to issue the Government of India notes since 1935. 500 rupee note currency was introduced later. In 1940, one Rupee notes were issued again. Till 1947, the currency notes with the image of King George VI were in circulation. After Independence, the Government of India issued currency notes. In 1925, the British government established a government press at Nasik in Maharashtra. Currencies were printed three years later. In 1974, a press was started in Dewas, Madhya Pradesh. (Security Printing and Minting Corporation of India Ltd.) In the 1990s. two more presses were started in Mysuru, Karnataka and Salboni in West Bengal to print bank notes. The Reserve Bank of India has the authority to decide the value of currency to be printed and how the amount should reach its destination safely. Though the RBI has the power to print up to ten thousand rupee notes, at present a maximum of upto rupees two thousand is printed.

Recap

• Barter system flourished where civilizations thrived.
• Gold, silver and copper were called ancient money.
• Pepper and spices took a major share of exports.
• Paper money was introduced because metal supply was limited.
• Mobile banking is widely used nowadays.
• A government has the responsibility to regulate the money supply and oversea circulation.
• All the major and important banks are nationalised in India.
• There is a close relationship between money and price.

Exercise

Exercise 1. Choose the correct answer

1. Certain metals like (gold / iron) were used as a medium of exchange in ancient times.

2. The Head Quarters of the RBI is at (Chennai / Mumbai).

3. International trade is carried on in terms of (US Dollars / Pounds).

4. The currency of Japan is (Yen/ Yuan)

Exercise 2. Fill in the blanks

1. System can be considered as the first form of trade.

2. Money supply is divided into

3. The first printing press of the RBI was started at .

4. act as a regulator of the circulation of money.

5. The thesis about money by B.R. Ambedkar is .

Exercise 3. Match the following

1. US Dollar
2. Currency in circulation
3. ATM
4. Salt
5. Riyal

Options: Automatic Teller Machine, Substitute of money, Universally accepted currency, Saudi Arabia, 85 PERCENT

Exercise 4. Give short answers

1. Why was money invented?

2. What is ancient money?

3. What were the items used as barter during olden days?

4. What is spice route? Why was it called so?

5. What is natural money

6. Why were coins of low value printed in large quantities?

7. What is meant by foreign exchange?

Exercise 5. Answer in detail

1. Explain how money is transacted in the digital world.

2. Explain in detail about the role of RBI in the country.

3. Write in detail about the various functions of money.

Exercise 6. Write the correct statement

(a)

1. The barter system flourished wherever civilizations thrived.

2. This was the initial form of trade.

(1) 1 is correct; 2 is wrong (2) Both 1 and 2 are correct (3) Both 1 and 2 are wrong (4) 1 is wrong; 2 is correct

(b)

1. Most of the international trade transactions are carried out in US dollars.

2. No other country except the US carries out trade in the world.

(1) Both the statements are correct. (2) Both the statements are wrong. (3) 1 is correct; 2 is wrong (4) 1 is wrong; 2 is correct Exercise 7. Project and activity

1. Visit a local museum and collect information about the coins displayed there.

2. Imagine you are going abroad for a Post Graduation course in architecture. Write a letter to the Branch Manager regarding an education loan.

Exercise 8. Life skills

1. Observe at a 20 rupee note. What is written on it?

2. Prepare a family budget for a month.

Book-back Exercises — Questions & Answers

Answers generated strictly from the Samacheer Kalvi textbook content. Attempt each question first, then click "Show Answer" to check.

1. Choose the correct answer

1. Certain metals like _____ (gold / iron) were used as a medium of exchange in ancient times.

Answer: gold

Explanation: The chapter states that gold, silver and copper were the metals used first and were called ancient currency.

2. The Head Quarters of the RBI is at _____ (Chennai / Mumbai).

Answer: Mumbai

Explanation: The chapter mentions that RBI was permanently moved to Mumbai from the year 1937.

3. International trade is carried on in terms of _____ (US Dollars / Pounds).

Answer: US Dollars

Explanation: The chapter states that most of the international trade transactions are carried out in US dollar.

4. The currency of Japan is _____ (Yen/ Yuan)

Answer: Yen

Explanation: According to the currency table in the chapter, Japan's currency is Yen.

2. Fill in the blanks

1. _____ System can be considered as the first form of trade.

Answer: Barter

2. Money supply is divided into _____

Answer: Refer to the chapter text for this answer.

3. The first printing press of the RBI was started at _____.

Answer: Nasik

4. _____ act as a regulator of the circulation of money.

Answer: RBI (Reserve Bank of India)

5. The thesis about money by B.R. Ambedkar is _____.

Answer: The Problem of the Rupee - Its origin and solution

3. Match the following

1. Match the Following

1. US Dollar	a) Automatic Teller Machine
2. Currency in circulation	b) Substitute of money
3. ATM	c) Universally accepted currency
4. Salt	d) Saudi Arabia
5. Riyal	e) 85 percent

Answers: 1-c, 2-e, 3-a, 4-b, 5-d

4. Give short answers

1. Why was money invented?

Answer: Money was invented to solve the problems in the barter system. There were issues in exchanging needed goods and measuring the quantity and value of goods exchanged was very difficult.

2. What is ancient money?

Answer: Gold, silver and copper were the metals used first as money. They were called ancient currency or ancient money.

3. What were the items used as barter during olden days?

Answer: Leather, beads, shells, tobacco, salt, corn and even slaves were exchanged as barter. Grains and cattle were also commonly exchanged items.

4. What is spice route? Why was it called so?

Answer: Refer to the chapter text for this answer.

5. What is natural money

Answer: The metals such as silver and gold gained importance gradually all over the world and were used as standard value in the exchange of goods. This was called as natural money.

6. Why were coins of low value printed in large quantities?

Answer: Coins were made using metals with lesser value to buy and sell goods of lesser value. It was used as the money of the poor people. Hence these coins were printed in large numbers.

7. What is meant by foreign exchange?

Answer: In a country, the foreign currency is called foreign exchange. Purchasing capacity of all currencies in the world are compared using the US dollar as the standard currency.

5. Answer in detail

1. Explain how money is transacted in the digital world.

Answer: In the digital world, money transactions have become easy and swift. One can withdraw money from ATMs using debit cards without visiting banks. Credit cards allow purchases on credit with later payment. Online transactions through net banking enable money transfer globally. Mobile banking is widely used nowadays. Technology has advanced to include Near Field Communication (NFC) which takes only 7-8 seconds to transact money.

2. Explain in detail about the role of RBI in the country.

Answer: The Reserve Bank of India regulates the circulation of currency in India. It started operations on 1st April 1935 and was permanently moved to Mumbai in 1937. RBI was nationalised in 1949. It has the responsibility to regulate money supply and oversee monetary policy. 85 percent of printed currency is let for circulation. RBI has authority to decide currency value and ensure safe distribution. It plays a crucial role in maintaining the country's economic stability through price controls.

3. Write in detail about the various functions of money.

Answer: Money performs four main functions. As a medium of exchange, it should be accepted liberally for goods and services in a country. As a unit of account, it serves as the common standard unit for calculating consumer goods, products and services. As a store of value, money stores purchasing power for future payments. Money also acts as a standard of deferred payments. These functions solved practical issues that existed in the barter system and made transactions easier.

6. Write the correct statement

(a) 1. The barter system flourished wherever civilizations thrived. 2. This was the initial form of trade.

(1) 1 is correct; 2 is wrong (2) Both 1 and 2 are correct (3) Both 1 and 2 are wrong (4) 1 is wrong; 2 is correct

Answer: (2) Both 1 and 2 are correct

Explanation: The chapter states that barter system flourished wherever civilizations thrived and these articles exchanged through barter system can be termed as the first form of trade.

(b) 1. Most of the international trade transactions are carried out in US dollars. 2. No other country except the US carries out trade in the world.

(1) Both the statements are correct (2) Both the statements are wrong (3) 1 is correct; 2 is wrong (4) 1 is wrong; 2 is correct

Answer: (3) 1 is correct; 2 is wrong

Explanation: The chapter confirms that most international trade transactions are carried out in US dollars, but statement 2 is incorrect as many countries participate in international trade.

📝 Summary

1. The barter system was the first form of trade where people exchanged surplus goods directly, such as excess food for pottery or different crops between regions.
2. Problems in the barter system included difficulty in finding people who wanted what you had to offer and challenges in measuring the quantity and value of exchanged goods.
3. Metals like gold, silver and copper became the first form of money because they were rare, durable, and maintained their value over time, solving the issues of the barter system.
4. Sher Shah Suri introduced the silver Rupiya coin weighing 178 grams during 1540-1546, which continued to be used during the Mughal period, Maratha era, and British India.
5. Money plays a predominant role in modern life, with all goods having monetary value, wages and services fixed on money basis, and both household and government budgets framed using money.