-*Dr. S. Vijay Kumar
Money is derived from a
Latin word, Moneta, which was another name of Goddess Juno in Roman history.
The term money refers to an object that is accepted as a mode for the
transaction of goods and services in general and repayment of debts in a
particular country or socio-economic framework. Money is an important and
powerful tool which was created by man thousands of years ago. “Money is a
pivot around which the whole economy clusters”. Anything that serves
as a medium of exchange, as unit of account and used as a store value can
be referred to as money. It should have characteristics of Durability, Portability,
Divisibility, Uniformity, Acceptable, Scarcity, Stability, Cognizability means
its value must easily identifiable and compare its worth.
Types of Money:
Fiat Money – The main form of money used
in economies today is fiat money. It is a money whose value is not based on its inherent value but
is based on an authoritative i.e., by the Government. Examples: Banknotes
(paper money) and coins.
Commodity Money - Its value comes from the commodity it is made
from. Examples: Precious metals like Gold and Silver.
Representative Money - Like fiat money, it has
no value of its own, but backed by a commodity like gold and silver reserves. Examples:
Gold & Silver Certificates, Paper money and Token Coins.
Fiduciary Money or Bank Money - Deriving from the Latin word fiducia means trust. Fiduciary
money works on the promise and trust that it will be exchanged for fiat or
commodity money by the issuer (bank). Examples: Cheques, bank drafts.
Commercial Bank Money or Credit Money – Commercial banks are able to create credit money by issuing
loans in greater amounts than the reserves they hold in their vaults, typically up to 10 times more. Virtually any form of financial instrument that cannot or
is not meant to be repaid immediately can be termed as a form of credit money.
Digital Money/Currency - Any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet is digital money. Examples: Cryptocurrency, Virtual Currency, Electronic or E – Money, Central Bank Digital Currency (CBDC). Let we know the differences between each of them.
*Professor & HOD of Economics, Bharat Jyoti Awardee, Ex- Member of BOS in Economics, KGC (NAAC “A” Grade), Kakatiya University, Warangal – TS (India).
Virtual Currency: In 2014,
the European
Banking Authority defined virtual currency as "a digital
representation (computerized data) of value that is neither issued by a central
bank or a public authority, nor necessarily attached to a fiat currency, but is accepted
by natural or legal persons as a means
of payment and can be transferred, stored or traded. Example: Bitcoin. As we
have already known the difference between Digital and Cryptocurrencies, now we can
compare them with the Virtual Currencies.
|
Digital
Currencies |
Cryptocurrencies |
Virtual
Currencies |
|
Regulated or
unregulated currency that is available only in digital or electronic form. |
A currency that
uses cryptography to secure and verify transactions as well as to manage and
control the creation of new currency units. Example: Bitcoin. |
An unregulated
digital currency that is controlled by its developer(s), its founding
organization, or its defined network protocol. Example: Bitcoin. |
E-Money: It is stored in the banking computer systems. It doesn’t have a physical form. Nowadays, E-money is popular because of its flexible and safe features rather than physical cash. It can be transferred through debit cards, credit cards, computer systems and smartphones. It gives customers the possibility to make bank to bank transactions fastly and buy goods and services online. But there is also a danger of cybercrime i.e., possibility of hacking customer accounts, if safety measures are not followed.
Types of E-Money:
Soft Electronic currency: Reversible transactions are dealt through soft electronic currency. E-Money transfers can be done through UPIs/NEFT/RTGS/Credit Cards via Smart Phones using Net Banking facility.
Hard Electronic Currency: Non-reversible transactions are dealt through hard electronic currency, such as those drawn through a bank. The best part about this type of e-money is its cost efficiency of operations and limited paperwork. Example: Western Union, KlickEx, Bitcoin.
Central Bank Digital Currency (CBDC): Finance Minister Nirmala Seetharaman announced during her Budget 2022-2023 speech that digital assets, which includes cryptocurrencies and non-fungible tokens – NFTs (means non-interchangeable unit of data stored on a blockchain, a form of digital ledger, that can be sold and traded. Each token is uniquely identifiable. NFTs differ from blockchain cryptocurrencies, such as Bitcoin) would attract a 30 per cent tax on any income from their transfer. This is an indication that the finance minister would be rolling out digital currency policy soon called Central Bank Digital Currency (CBDC). The announcement of the CBDC just after taxation was announced for digital assets confused a lot of people into thinking that the CBDC would/should also be taxed. However, digital currencies are not digital assets like cryptocurrencies or NFTs. Some countries, regulated cryptocurrencies, for example – El Salvador became the first country to accept Bitcoin as Legal Tender. European Union also recognizes Bitcoin and other cryptocurrencies as crypto-assets.
Thus, we can sum-up,
Digital money is the digital representation of value. The public sector can
issue digital money called central bank
digital currency—essentially a digital version of cash that can be stored
and transferred using an internet or mobile application. The private sector can
also issue digital money. Some forms can be redeemed for cash at a fixed face
value. These are fully backed with very safe and liquid assets and are usually
referred to as e-money. Stable coins can be a form of e-money, but
also come in other designs whose value is more volatile. Crypto assets, such as Bitcoin, are issued in
their own denominations and are especially volatile—too much to be considered a
form of digital money (they are usually considered an investment asset).
Future of digital currency: New digital currencies like cryptocurrencies are still in the early days of development. Cryptocurrency values have skyrocketed in recent years as various companies have expressed interest in building new services and products with them, and investors have increasingly viewed cryptos as an investment asset class. Central banks that create and back fiat currency may also alter the landscape if they begin issuing their own digital currencies. The future for digital currencies and other digital assets utilizing them is in flux, but the steady expansion of technology bodes well for the proliferation of electronic forms of money and payment.
To conclude, money whether it is in physical
form or in digital form or in any other form must be used rationally with utmost
care, because money is money. Otherwise, one has reap the consequences.
References:
1. Money – Wikipedia
- https://en.wikipedia.org/wiki/Money
2. A New Era of
Digital Money – IMF F&D - https://www.imf.org/external/pubs/ft/fandd/2021/06/online/digital-money-new-era-adrian-mancini-griffoli.htm
3. Budget Speech 2022-23
By Nirmala Sitharaman
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