III) Metallic money- is “money made of some metal”. With the drawbacks of commodity money and with economic advancement of the people, metals came to be used as money.
This existed during the town economy stage or during the pre-machine age. In the beginning iron, copper, tin, bronze, nickel, lead, gold, silver etc were used. The final choice however was in favour of gold and silver due to their scarcity. Initially pieces of gold and silver of different sizes and shapes were used.
Therefore metals which served as money were Gold, Silver, and Copper etc. In recent times baser metals like aluminum etc are used.
Advantages of metallic money-
1) It had all the qualities of good money
3) It had ornamental and decorative value.
4) It could be stored.
5) Steady demand and supply.
6) Subdivision was possible.
7) It had a high and stable value.
8) It was readily acceptable.
Due to these characteristics metals served as an excellent medium of exchange.
Disadvantages of metallic money –
1) Necessary to carry in bulk in case of large transactions.
2) Had to be split up at every stage of exchange.
3) Difficult to assess the value of metals.
4) Not easily potable.
5) The pieces of metal were not uniform in weight, size, shape, value etc and therefore had to be weighed at every stage of exchange.
III) Metallic coins- – Due to the drawbacks of metallic money, metallic coins were introduced. Introduction of metallic coins is considered to be an important stage in the evolution of the modern monetary system. Metallic coins were introduced by the kings resulted in the development of the coinage system which removed the imperfections of metallic money.
“A coin is a piece of metal of a given size, shape, weight and fineness whose value is certified by the state”. Historically, coins were first minted in 5th century B C (during the later part of the town economy). It is believed that coins were first minted and introduced by the private bankers, goldsmiths, sahukars etc.
Coins of standard weight and degree of fineness were issued in all countries by their rulers / kings They had different designs/seals of rulers stamped on one side and value on the other certifying the purity and weight of the coin on. Coins came to be accepted at face value. Coins were introduced in different denominations and therefore were useful in all kinds of transactions.
The history of the monetary system reveals that till the beginning of the First World War (1914-1918), a large portion of the world metallic money consisted of coins made of gold and silver. The coins of lower denominations were made of inferior and lighter metals like copper nickel etc.ie till the end of the 19 th century both gold and silver were used as money. In the early 20th century only gold was used and still later coins of baser metals like nickel came to be used.
With the passage of time the monetary system was taken over by the government with a view to making coins uniform and giving them a legal status. This also gave them a general acceptability. The right of minting coins is the monopoly of the state. The department of the government minting coins is called the “MINT. Later the job of minting coins was taken up by the government to bring about uniformity of coins. Money issued by the government is known as legal tender money.
Advantages of metallic coins-
1) Stamps of rulers therefore generally accepted.
2) Fixed weight and purity of metal.
3) Accepted at face value (without weighing).
Disadvantages of metallic coins -
1) Not easily portable and jingle while carrying.
2) Not safe to carry from place to place.
3) Difficult to carry out large transactions.
4) Value of money fluctuates from time to time.
6) Intrinsic value of coins was greater than face value.
7) The metal would be sold out after melting instead of being used as a medium of exchange.
8) Supply of coins was limited to the quantity of metal available for coinage which was very costly. (full bodied coins or standard money, token coins).
9) Loss of weight and value of coins due to wear and tear, etc.
Classification of metallic money
a) Full bodied or standard money
b) Token money-
a) Full bodied coins or standard money/coins or full-valued coins-
Standard coins were made out of standard metals like gold and silver. These standard coins were used in the initial period when the supply of gold and silver was ample in relation to the population.
“Full bodied money is the money whose face value is equal to the real or intrinsic worth of the metal it is made of”.
FACE VALUE == INTRINSIC VALUE
[The exchange value fixed by the
issuing authority and embossed on it] == [The worth of the metal content of the coin]
Full bodied money is useful for monetary as well as non-monetary purpose.
The principal full bodied money in modern monetary system have been coins of the standard metal when a country is on a metallic standard The gold coins in circulation in the gold standard system and the silver coins in circulation in the silver standard system both gold and silver coins in a bimetallic standard were full bodied coins.eg in India before 1940 the rupee made of silver was a standard coin / a full bodied coin.
If required a person could melt the coin and sell the bullion in the market. There would be no loss because the coin contained metal equivalent to its face value.
According to Robertson, “Full bodied money is the one whose value is not materially greater than that of its component stuff”.
Full bodied money is money whose value as a good in non-money purpose is equivalent to its value as a medium of exchange. For example, if the market value of 10 grams of gold is Rs 20000/- and the government made 10 grams gold coins, then the face value of the coin would equal Rs 20000/- .The coin is a full-bodied commodity money. If gold was not used as money, it still has other uses, such as jewelry, teeth fillings, and wires. etc. Governments made an unusual discovery about commodity money.
Standard money is subject to free coinage and is unlimited legal tender money (ie money that is accepted without limit as a means of payment) It is used as a unit of account.
b) Token money / token coins-
Present coins (especially of smaller denominations) are made of relatively cheaper / baser metals like nickel copper bronze zinc aluminum etc.
“Token money is the money whose face value is greater than the real or intrinsic worth of the metal it is made of”.
FACE VALUE > INTRINSIC VALUE
[The exchange value fixed by the
issuing authority and embossed on it] > [The worth of the metal content of the coin]
The quantity of token money is arbitrarily managed and manufactured by the government as per requirement. It facilitates small transactions. Token coins are generally of small denominations and are issued primarily as a form of subsidiary money which is used for small change only. They are convenient for payment of small sums. Token coins are light weight and intrinsically worthless. Eg in India all coins in circulation today are token coins.
In India after 1946 the rupee became a token coin as it ceased to contain any silver at all. It is now made up of inferior metal. All our coins i.e. .50/- p, Re 1/-, Rs2/-, Rs5/- are token coins. i.e. their value is far greater than the value of the real metal contained in them. Re1/- is called “a note printed on nickel,
Today almost all countries of the world have token coins.”
According to Halm, ‘It is managed money, the money whose quantity is determined by the arbitrary decision of the government.’
Token money is not subject to free coinage limited legal tender money and hence no person can be forced to accept it beyond a certain limit. All coins in India are token coins.