PAPER CURRENCY :-
The money made of paper is called
paper money. It consists of currency notes issued by the government or the
central bank of a country. The term paper money applies to bank notes and
government notes, which pass freely from hand to hand without any difficulty
and question, Under paper money standard, although the standard money is made
of paper, both currency and coins serve as standard money for the purpose of
payment.
Nowadays
no gold reserves are required to be kept as reserves against the issue of
domestic paper currency as well as towards foreign payments. The quantity of
money in circulation is controlled and managed by the monetary authority with a
view to maintain stability in prices and incomes within the country.
Advantages Of Paper Currency :-
1. Economical
:- It is economical
because there is no need of valuable metal. Printing of paper notes, obviously,
is much cheaper than minting of gold and silver coins. And moreover, nowadays
no gold reserves are required.
2. Convenience
In Making Payments :-
One can pay in terms of note without much inconvenience. It is easy to carry,
transfer and transport because of less weight and high denominations. And it
can also be conveniently be stored.
3. Elasticity :-
Government can increase or decrease the quantity of money as per the
requirements. Nowadays it has become more easy because no gold reserves has to
be maintained against the issue of currency.
4. Avoids
Wastage Of Gold :-
Wastage of gold is avoided as no gold reserves are kept idle with the
government. Thus these precious metals can now be used for some other purpose
i.e. ornaments etc.
5. Helps
In Deficit Financing :- Government, when required can print the notes and make arrangements for
payments of excess expenditure. Thus it is useful for developing countries.
6. Divisibility
:- Paper currency
can be divided even into small parts by printing notes of small denominations.
7. Development :- Paper
currency provides a scope for creation of fund as per need and requirement. As
a result, enough funds can be provided for development.
8. Economic
Growth :- Paper
currency facilities control over the supply of money. Thus, economic growth can
be maintained by proper supply of paper currency. As this method is well
developed; therefore there is a scope for economic growth.
9. Portable
:- Paper money is
portable. When large payments are involved and especially between different
places, this advantage is enforced.
10. Useful During Emergency :- This currency is very useful at times of war when large funds are
needed. It is also best suited to the less developed countries like India.
Disadvantages Of Paper currency :-
1. Dangers
Of Inflation :- The
control of issue of currency notes are in the hands of the government.
Sometimes there may be over expansion of money supply in the market and this
may lead to inflation. Government also has the tendency to issue more notes to
fulfill the deficiency. All these may lead to inflation in the country.
2. Danger
Of Mismanagement :-
The whole authority and control is in the hand of the government, and therefore
it should be properly and efficiently managed. A minor mistake may lead to
inflation or deflation in the economy.
3. Absence
Of Automatic Working :- The paper currency standard does not work on its own. To make it work
properly, the government has to interfere from time to time.
4. Absence
Of Public Confidence :- At present, minimum reserve system is applied for issue of paper
currency. According to this system, there is no scope to convert paper currency
into gold. As a result, there is absence of public confidence.
5. Black
Money :- In case of
paper currency there is a scope for tax evasion, black marketing, corruption
etc. Thus, paper currency facilities black money.
6. Facilitate
Exploitation :- It
is found that paper currency facilities dis-similarity. It is because of rich
becomes more richer and poor more poorer. The poorer are exploited by richer in
many ways. Paper currency facilities such exploitation, when it is over issued.
7. Inequality
:- Rich become more
richer and poor more poorer due to paper currency. Thus, paper currency
facilities inequality of income and wealth. In this way paper currency
facilities class conflict.
8. Limited
Scope :- Paper
currency can be accepted in limited area say in particular nation. It is nor
accepted world wide, as like gold.
9. Exchange
Instability :- Since
the currency has no link with any metal there are wild fluctuation in the
foreign exchange rates. This adversely affects the countries international
trade.
10. Misuse
by Government :-
When it is not possible to collect sufficiently revenues in the form of taxes
and debts, government resorts to issuing notes often for unproductive purpose.
11.Less
Durable :- Paper
currency is far less durable as compared metallic money. It can be easily
destroyed or spoiled.
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