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Nature and Definition of Money

 Nature and Definition of Money

Nature and Definition of Money

            Money is defined as “Money is a difficult concept to define, partly for the reason that it fulfils not one but three functions each of them providing a criterion of money ness those of a unit of account a medium of exchange and a store of value.”

            Another definition which helps to understand money is, “the means of valuation and of payment as both the unit of account and the generally acceptable medium of exchange.”

Theoretical and Empirical Definitions of Money

  1. The traditional Definition of Money

    As per traditional view, money is defined as currency and demand dump and its most significant function is to act as a means of exchange. Keynes in his General Thesis pursued the traditional view and defined money as currency and demand deposits. Hicks in his nature of money: “to act as a unit of account as a means of payment and as a store of value.” The banking school condemned the traditional definition of money as subjective.

  1. Definition of Money by Friedman

    By money means “Literally the number of dollars people is carrying around in their pockets, the number of dollars they have to their credit at banks in the form of demand deposits and commercial bank time deposits.” Thus he defines money as “the sum of currency plus all adjusted deposits in the commercial banks.”

  1. Definition of Radcliff

    The Radcliff committee defined money as “notes plus bank deposits.” It consists of money, only those possessions which are generally used as medium of substitute. Assets denote to quick assets by which it means the monetary amount manipulating total effectual demand for goods and services. This is understood extensively to comprise credit.

    Thus the entire liquidity position is pertinent to expending pronouncement. Expending is not restricted to cash or money in the bank but to the volume of money public believe they can get grip of either by selling a possession or by borrowing or receipts of earnings from sales.

  1. The Definition of Gurley Shaw

    Gurley and Shaw look upon a considerable degree of liquid assets alleged by financial mediators and the accountabilities of non-bank mediators as close surrogates for money. Mediators offer replacements for money as a mass of value. Money proper which is defined as parity to currency plus demand deposits is only one liquid asset. They have thus devised a wider definition of money depending on the liquidity which consists of bonds, indemnity surplus, pension funds, reserves and credit shares.

    They believe in the swiftness of money reserve which is predisposed by non-bank mediators. Their visions on the definition on money are dependant on their own and Goldsmith’s pragmatic conclusion.

Money and Near Money

    Money comprises of currency and bank deposits. Coins and currency notes issued by the central bank of a nation and cheques of commercial banks of a nation are quick assets. In fact cheques and bank drafts are approximately ideal surrogates for money. This is for the reason that they carry out the medium of swap function of money. But cheques and drafts can be issued at a petite notice only in the case of demand deposits.

    This is not the crate with time deposits that can be reserved whichever at the finish of the set phase or by giving aforementioned notice to the bank and sustaining a punishment. Thus time deposits are not actual money and to become money they should be rehabilitated into cash or demand deposits. Nevertheless, they are proximity money for they can be rehabilitated into cash or demand deposits.

    Apart from time deposits other proximity money possessions are bonds, securities, insurance policies, debentures, treasury bills, bills of exchange etc. All these kinds of assets have a market and are exchangeable so that they can be rehabilitated into actual money within a limited phase.

Inside Money and Outside Money

    The disparity amidst inside and outside money is significant from many visions. First, we analyse the significance of the difference amidst the two in a period of mounting or declining prices. When there is inflation or deflation, a variation in the purchasing power of money in the private crate of inside money tends to a parity variation in the actual values of both the assets and liabilities of the private sector.

    Thus a variation in the price level does not influence the mannerism of depositors and borrowers holding inside money. The monetary system also does not earn or mislay in actual terms by such variations in the actual volume of its arrears for the reason that there is a parity variation in the actual value of its claim against companies.

    In the crate of outside money, when price hikes, the actual value of cash held by exogenous economic units falls. Alternatively, when price drops the actual value of cash possessed by monetary unit rises. Thus a variation in the price level influences the mannerism of monetary units possessing outside money. Thus given ostensible volume of outside money its actual value changes inversely with the price level and each variation in its actual value tends to a wealth negotiation amidst the private sector and the statute. This wealth negotiation influences private demands for money, goods and labour but not the statute demand.

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