Theme 1 : Money , Banking Finance

Session 3- Money : The beginning

Addressing your Queries
Addressing your Queries
Modern china is characterised by a capitalist economy
which is deeply integrated with international market
while having strong political centralisation in communist
party of China.

Apart from that, tendencies can also be seen in brutal

suppression of dissent, aggressive foreign policy and a
quest to become a global power
 Transformative
Reforms

Deng’s Reform

Mao’s Vision of
Modern China
china

Failed
policies
Addressing your Queries
Addressing your Queries
 Session 2 : Overview
1 Barter Economy

2 Money functions

3 Evolution of money → commodity

4 Metallic money
5 Paper/fiat money

6 Bank money → NEFT, RTGS, IMPS

7 Revisit session and Glimpse into Session 3
 Learn through Questions-2
Consider the following statements regarding Socialist society.
1. In a socialist society the government decides what goods are to be
produced in accordance with the needs of society.
2. The desires of individual consumers are given much importance.
3. The goods produced are distributed among people on the basis of
Purchasing Power.

Which of the above statements is/are incorrect?

a) 2 only
b) 1, 2
c) 2, 3
d) 1, 3
 Learn through Questions-2
Consider the following statements regarding Socialist society.
1. In a socialist society the government decides what goods are to be
produced in accordance with the needs of society.
2. The desires of individual consumers are given much importance.
3. The goods produced are distributed among people on the basis of
Purchasing Power.

Which of the above statements is/are incorrect?

a) 2 only
b) 1, 2
c) 2, 3
d) 1, 3
 Barter System

Chilli

Paddy
 Barter System : Pros and Cons
Simple form of trade

Effective in emergency situation and

sometimes effective for sustainable
initiatives

Foreign exchange system

Barter System : Issues
Double Coincidence of
demand

High Cost of transaction

No division of labour

Other Practical issues

 Barter System : Pros and Cons
Double Coincidence of
Simple form of trade
demand

Effective in emergency situation and

High Cost of transaction
sometimes effective for sustainable
initiatives
No division of labour

Foreign exchange system

Other Practical issues
Concept : Fungibility
 Learn through Questions-3
Which of the following are the possible advantages of the monetary
system over the barter system?

1. Reduction in transactions costs.

2. Better accounting of transactions.
3. Requires that prices must be negotiated for every transaction.

Select the correct answer using the code given below.

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
 Learn through Questions-3
Which of the following are the possible advantages of the monetary
system over the barter system?

1. Reduction in transactions costs.

2. Better accounting of transactions.
3. Requires that prices must be negotiated for every transaction.

Select the correct answer using the code given below.

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
 Learn through Questions-4

In an open economy, for the barter system to operate successfully, which of

the following principles must be completely satisfied?

(a) Law of Diminishing returns

(b) Double coincidence of wants
(c) The law of supply
(d) The law of demand
Double coincidence of wants is a situation where two economic agents
have complementary demand for each others‘ surplus production.

It refers to the simultaneous fulfilment of mutual wants of buyers and

sellers. For example, a person with a particular good has to find a person
who has the goods of his wants and he should also possess the wanted
good of the other person.
The law of supply: It is the microeconomic law that states that
all other factors being equal, as the price of a good or service
increases, the quantity of goods or services that suppliers
offer will increase, and vice versa.

The law of demand: It is a fundamental principle of

microeconomics which states that at higher price consumers
will demand a lower quantity of a good.
 Learn through Questions-4

In an open economy, for the barter system to operate successfully, which of

the following principles must be completely satisfied?

(a) Law of Diminishing returns

(b) Double coincidence of wants
(c) The law of supply
(d) The law of demand
 Need of A
Common Money
Money Function

Primary functions

Secondary Functions

Contingency
functions

Other functions
Evolution of Money
Commodity
money
Evolution of Money
Metallic
Money

Paper/
fiat money

Bank money

Crypto-
currency
Commodity Money → Intrinsic Value
 Commodity Money → Intrinsic Value
Meat : no shelf life
Iron : rust We are able to purchase
Cant retain intrinsic value different goods at different
prices

Convenience Limited supply

Eg: cow vs Gold coin Other wise inflation
 Commodity Money→ issues
Many of What about
commodities uniformity
are perishable

What about
exchange with
outsiders

What if new source

find : then unexpected
new supply
Metallic Money in Ancient times
 Main [2017] → GS 1

How do you justify the view that the level of excellence of

Gupta numismatic art is not at all noticeable in later times?

Numismatics is the study or collection

of currency, including coins, tokens, paper
money and related objects
Metallic Money : Coins
 Shortage of
metals

Towards Paper Money

Paper Money: Fiat Money & Legal Tenders
Paper Money → Fiat Money
Paper Money: Fiat Money & Legal Tenders
 Fiat Money & Legal Tender

Fiat currency but not legal tender in india

Nor Fiat currency neither legal tender in India

Nor Fiat currency neither legal tender in India

Previous Year Question-1
Limited vs Unlimited Legal Tender
Commodity
money
Evolution of Money
Metallic
Money

Paper/token/
fiat money

Bank money

Crypto-
currency
 E-Banking
SBI , Chandni Chowk
Branch

MG road , Gurgaon

Core Banking
Solution
Previous Year Question-2
Digital Transactions
 NEFT
National Electronic Funds Transfer
(NEFT) is a nation-wide centralised
payment system owned and operated
by the Reserve Bank of India (RBI).
NEFT : How it works
NEFT
NEFT
 Bank Money :

June 2019 October 2019

 RTGS
The acronym 'RTGS' stands for Real Time Gross
Settlement, which can be explained as a system
where there is continuous and real-time
settlement of fund-transfers, individually on a
transaction by transaction basis (without
netting).

'Real Time' means the processing of instructions

at the time they are received; 'Gross Settlement'
means that the settlement of funds transfer
instructions occurs individually.
RTGS

24*7
 IMPS

Bank portal
Mobile apps
USSD
 IMPS
IMPS is an innovative real time payment service that is available
round the clock. This service is offered by National Payments
Corporation of India (NPCI) that empowers customers to transfer
money instantly through banks and RBI authorized Prepaid
Payment Instrument Issuers (PPI) across India.
24*7
 NPCI
It is an umbrella organization for operating retail payments and
settlement systems in India.

It is an initiative of RBI and Indian Banks’ Association (IBA) under

the provisions of the Payment and Settlement Systems Act, 2007.

▪ It has been incorporated as a “Not for Profit” Company under

the provisions of Section 25 of Companies Act 1956 (now Section
8 of Companies Act 2013)
More about types of companies
later
 NPCI

ten core promoter banks are State Bank of India, Punjab

National Bank, Canara Bank, Bank of Baroda, Union
Bank of India, Bank of India, ICICI Bank, HDFC Bank,
Citibank N. A. and HSBC.

In 2016 the shareholding was broad-based to 56

member banks to include more banks representing all
sectors
ATMs → National Financial Switch
 ATMs → National Financial Switch
What is NFS?

National Financial Switch (NFS) is the largest network of shared automated

teller machines (ATMs) in India. It was designed, developed and deployed
with the aim of inter-connecting the ATMs in the country and facilitating
convenience banking. It is run by the National Payments Corporation of
India (NPCI).
 White Label-ATM
Automated Teller Machines (ATMs) set up, owned and operated by non-
bank entities are called “White Label ATMs” (WLAs). They provide the
banking services to the customers of banks in India, based on the cards
(debit/credit/prepaid) issued by banks.

What was the need to allow non-bank entities for setting up of WLAs?

Keeping the fact in view that banks won’t be able to provide their ATM
facilities in each and every place, non-bank entities were allowed by the
RBI to set up White Label ATMs. This was done to increase the
geographical spread of ATMs and enhance the customer service.
Key facts related:

•Non-bank entities shall commence setting up and

operating WLAs only after it has been authorised to do so
by the RBI under the Payment and Settlement Systems
Act, 2007.

•WLAO is permitted to have more than one Sponsor Bank.

All the transactions of WLAs serviced by this Sponsor Bank
would be settled through it.
•Cash Management at the WLAs will be the responsibility of the Sponsor Bank, who
may if required, make necessary arrangements with other banks for servicing cash
requirements at various places.

•Maintenance and servicing of the WLAs shall be the sole responsibility of the WLAO.
Previous Year Question-3
End of Session 3

Lets Revisit
Glimpse Into Session 4
Happy Learning !!!!