Anything that is generally acceptable as a means of payment in the settlement of all transactions, including debt, is money.

Money is the generally-used medium of exchange or means of transferring purchasing power. The unique feature of money is that it is generally accepted as a medium of exchange or as a means of payment. Money has the power to buy things directly in all markets. It need not require to be converted into something else before it can be spent or used for the settlement of debt. In simple terms what we use to pay for things or services is referred to as money. Various things such as goats, cows, rice, silver and gold pieces and coins, paper currency notes and demand deposits of banks have served as money at different times and place. At present, to a layman in India the Rupee is the money, in England the Pound and in America the Dollar is the money. But, to an economist, all these are (Rupee, Pound and Dollar) merely different units of money. Money belongs to the category of things which are not amenable to any single definition. It has been defined differently by different economists. Some of the definitions of money are stated below : According to Walker, 'Money is that money does'. Saligman defines money as 'One thing that possesses general acceptability.' According to Coulborn, 'Money may be defined as the means of valuation and payment.' Hicks says that 'Money is defined by its functions.' According to Kent, 'Money is anything which is commonly used and generally accepted as a medium of exchange or as a standard of value.' Professor W. T. Newlyn says 'Anything is money which functions generally as a medium of exchange.' According to Knapp, ' Anything which is declared as money by the state, that becomes money.' According to D. H. Robertson, anything which is widely accepted in payment for goods or in discharge of other kinds of business obligations is called money.' Crowther defines money as 'Anything that is generally acceptable as a means of exchange and at the same time acts as a measure and store of value.' A complete definition of money should include all the important functions performed by money and also its basic characteristic, i.e., general acceptability. Thus, Crowther's definitions may be considered the best as it covers both these qualities. The evolution of money has passed through the following stages depending upon the progress of human civilisation at different times and places. (i) Animal Money : The agricultural communities in the primitive society used domestic animals as money. Cattle were considered the common instrument of exchange. Cattle were

used to measure the value of different things to be exchanged. In ancient India, according to Artha Veda, Go-Dhan (cow wealth) was accepted as a form of money. There is evidence to suggest that many things like beads, shells, eggs, ivory, nails, pigs, yarn etc. were used as money from time to time. For instance, Chinese character for money resembles a 'Cowerieshell indicating use of cowries as money. (ii) Commodity Money : From the beginning of human civilisation various types of commodities have been used as money. A number of commodities like bows, arrows, animal skins, shells, precious stones, rice, tea, etc., were used as money. Different factors like the location of the community, climate of the region, cultural and economic development of the society etc. influence the selection of a commodity to serve as money. (iii) Metallic Money : Discovery of precious metals and the the spread of civilisation and trade relations by land and sea, led metalic money to take place of commodity money. Gold and silver were the metals mostly used to form metallic money. Because of their scarcity, usefulness and attractiveness, gold and silver were regarded as natural money. They were choosen because of their convenience, storability, high value density and easy portability. (iv) Paper Money : The Chinese used one-fool square pieces of deer skin as money and later became the first people to use paper money. One of the reasons for issue of paper currency was shortage of copper for making coins. Europe learnt of paper money two hundred years later than Marcopolo visited China. Initially, the merchants used to carry paper receipts against metallic money due to the safety problem of carrying costlier metals like gold and silver from one place to another. With the passage of time, the scarcity of metals resulted in the introduction of convertible paper currency by the state authorities; paper money was convertible into metals. (v) Credit Money : Another stage in the evolution of money in the modern world is the use of the credit money or bank money. Credit money or bank money was used due to the development of banking institutions and their credit creation activities. Credit money (cheques) are issued against demand deposits. In fact, it is not money; it only performs the functions of money. Credit money, therefore is regarded as near-money. (vi) Plastic Money (Credit Cards): Increasing affluence combined with increasing complexity of life in the modern society has led to the use of credit cards. Credit cards provide convenience and safety in the purchasing process. It is generally known as 'Plastic Money'. The credit cards are made of plastic. Credit card enables the cardhalders to purchase products or services without making immediate payments. It is a document which can be used for purchase of goods and services all around the globe. (But in real sense credit card is not money)

Thus, the evolution of money has been passed through various stages: from animal money to commodity money, and to metallic money to paper money and from credit money to plastic money.

Generally, economists have defined four types of functions of money which are as follows: (i) Medium of exchange (ii) Measurement of value; (iii) Standard of deferred payments (iv) Store of value. These four functions of money have been summed up in a couplet which says: Money is a matter of functions four, a medium, a measure, a standard and a store. These functions have been presented below in the charitable. (i) Money as a Unit of Value: Money measures the value of various goods and services which are produced in an economy. In other words, money works as unit of value or standard of value. In barter economy it was very difficult to decide as to how much volume of goods should be given in exchange of a given quantity of a commodity. Money, by performing the function of common measure of value, has saved the society from this difficulty. Now the value of various goods and services are expressed in terms of money such as Rs. 10 per metre, Rs. 8/- per kilogram etc. In this way, money works as common measure of value by expressing exchange value of all goods and services in money in the exchange market. By working as a unit of value, money has facilitated modern business and trade. (ii) Medium of Exchange: Right from the beginning, money has been performing an important function as medium of exchange in the society. Money facilitates transactions of goods and service as a medium of exchange. Producers sell their goods to the wholesalers in exchange of money. Wholesalers sell the same goods to the consumers in exchange of money. In the same way, all sections of society sell their services in exchange of money and with that buy goods and services which they need. Money, working as medium of exchange, has eliminated inconvenience which was faced in barter transactions. However, money can operate as medium of exchange only when it is generally accepted in that role. Bank money

can be treated as money simply on the basis of their general acceptability for they are highly useful. (iii) Standard of Deferred Payments: Modem economic setup is based on credit and credit is paid in the form of money only. In reality the significance of credit has increased so much that it will not be improper to call it as the foundation stone of modem economic progress. Money, besides being the basis of current transactions, is also the basis of deferred payments. Only money is such a commodity in whose form accounts of deferred payments can be maintained in such a way so that both creditors and debtors do not stand to lose. (iv) Store of Value: It was virtually impossible to store surplus value under barter economy; the discovery of money has removed this difficulty. With the help of money, people can store surplus purchasing power and use it whenever they want. Saving in money is not only secure but its possibility of being destroyed is very less. Besides, it can be used whenever need be. By facilitating accumulation of money, money has become the only basis of promoting capital formation and modern production technique and corporate business facilitated there from. . Transfer of Value: Money also functions as a means of transferring value. Through money, value can be easily and quickly transferred from one place to another because money is acceptable everywhere and to all. For example, it is much easier to transfer one lakh rupees through bank draft from person A in Amritsar to person B in Bombay than remitting the same value in commodity terms, say wheat. 6. Distribution of National Income: Money facilitates the division of national income between people. Total output of the country is jointly produced by a number of people as workers, land owners, capitalists, and entrepreneurs, and, in turn, will have to be distributed among them. Money helps in the distribution of national product through the system of wage, rent, interest and profit. 7. Maximization of Satisfaction: Money helps consumers and producers to maximize their benefits. A consumer maximizes his satisfaction by equating the prices of each commodity (expressed in terms of money) with its marginal utility. Similarly, a producer maximizes his profit by equating the marginal productivity of a factor unit to its price.

8. Basis of Credit System: Credit plays an important role in the modern economic system and money constitutes the basis of credit. People deposit their money (saving) in the banks and on the basis of these deposits, the banks create credit. 9. Liquidity to Wealth: Money imparts liquidity to various forms of wealth. When a person holds wealth in the form of money, he makes it liquid. In fact, all forms of wealth (e.g., land, machinery, stocks, stores, etc.) can be converted into money.

The Reserve Bank of India defines the monetary aggregates as:[35] Reserve Money (M0): Currency in circulation + Bankers deposits with the RBI + Other deposits with the RBI = Net RBI credit to the Government + RBI credit to the commercial sector + RBIs claims on banks + RBIs net foreign assets + Governments currency liabilities to the public RBIs net non-monetary liabilities. M1: Currency with the public + Deposit money of the public (Demand deposits with the banking system + Other deposits with the RBI). M2: M1 + Savings deposits with Post office savings banks.

M3: M2+ Time deposits with the banking system = Net bank credit to the Government + Bank credit to the commercial sector + Net foreign exchange assets of the banking sector + Governments currency liabilities to the public Net non-monetary liabilities of the banking sector (Other than Time Deposits). M4: M3 + All deposits with post office savings banks (excluding National Savings Certificates).