We give below different kinds of money:

1. Standard Money:

Standard Money is that form of money in terms of which all other forms of money in the country are measured.

It is unlimited legal tender and is subject to free coinage, i.e., anybody can bring his metal and get coins made of it. Usually it’s real or ‘intrinsic value’ is equal to its face value. It is either made of gold or silver, or sometimes both. At present, no country has such a money in Standard Money.

2. Token Money:

Token money is made of cheaper metal; it is limited legal tender; it is not subject to free coinage and its face value is greater than its intrinsic or metallic value. Token money consists of small coins. The rupee is the standard unit of money in India, but its face value is greater today than its real value. Nor is the rupee subject to free coinage. It cannot, therefore, be called standard money. It is a mixture of the standard and token money.

3. Bank Money:


Bank money refers to bank deposits, the bank deposits can be turned into money by their depositors by means of cheques. In advanced countries the cheques are as good as money and circulate as such. Bank money or ‘cheque-created money’ is, however, quantitatively the most important now in all modern communities.

Just as metallic money superseded the other commodities as money and was in course of time superseded by paper money, in the same manner bank money has superseded all types of money in modern times. Cheques or bank money are superior to other forms of money in that they are convenient for mailing, for paying exact sums, for providing receipts in the form of counterfoils and on account of being safe against being stolen or misplaced.

4. Money of Account:

Money of account is the monetary unit in terms of which the accounts of a country are kept and transactions made, i.e., in which general purchasing power, debts are prices are expressed. The rupee, for instance is our money of account. Sterling, dollar, frank and mark are the moneys of account respectively of Great Britain, the United States, France and West Germany.

5. Coins and Coinage:

Metallic money consists of coins made of gold, silver, nickel, or copper. The coins may be:


(a) Standard coins and

(b) Token coins.

Standard Coins:

The standard coins, as already mentioned, are:


(1) Unlimited legal tender.

(2) Subject to free coinage, and

(3) Have their face value equal to their metallic or intrinsic value

The proportion of pure metal to weight in the coin is spoken of as “so much tine”. The Indian rupee was at one time made of silver weighing 180 grains and was 11/12 fine. During the war, new rupee (quaternary coins) were issued ½ fine and in 1947 nickel rupees were issued. The edges of the new rupee were slightly raised to avoid too much wear.

In addition, the edge was milled to avoid clipping or filing. At present, very few rupee coins are found in circulation. They have been replaced by rupee notes. All the world over, the State has the right of issuing coins which are made in a government mint There are mints at Bombay Calcutta in India.

Token Coins:

A coin has value because it is made of a valuable metal. It is full-bodied if its face value is equal to the metal contained in it. Sometimes however, a coin has value only because the government has stamped it. When the value given to a coin by government is in excess of its contents, it is called a ‘token coin’.

There cannot be free coinage in the case of token coins. They have a higher face value than the metal they contain and no private individual can permitted to make profit from coinage. It is only the privilege of the Govern­ment to do Token coins are also limited legal tender.

Our silver rupee was such a token coin till 1942. Then the price of silver rose so high that the intrinsic value of the rupee grew greater than its face value and it became what is called an ‘over-valued coin’. Hence it became profitable for people to melt down rupees and sell the silver contained in them.


The old rupees wholly disappeared from circulation and the Government had to issue new rupees (and half-rupees) of lesser fineness to enable ordinary business to be carried on. All coins circulating in India are token coins including the rupee and paise coins.

In short, token coins are:

(1) Limited legal tender,

(2) Not subject to free coinage, and


(3) Have face value greater than their metallic or intrinsic value. But what is legal tender?

Legal Tender:

Legal tender is money that can be paid to clear one s debts. It is usually backed by government sanction. No one can lawfully refuse to accept any amount of this money. The rupee and half-rupees coins are full legal tender or in limited legal tender in India. They can be offered to an unlimited extent in the in charge of debts.

Subsidiary coins can usually be offered only up to a limited extent and are therefore, called ‘limited legal tender”. Standard money enjoys the privilege of being ‘unlimited legal tender’. One-rupee coins, rupee notes and 50-paisa pieces arc legal lender to an unlimited extent, whereas coins of smaller denominations can be paid to the limit of ten rupees only. The device of making token coins limited legal tender is clearly useful, for otherwise the best way of making a man go mad would be to repay him a loan of, say a lakh of rupees in the form of paisa.


Position of Indian Rupee:

The Indian rupee is a mixture of the standard money and the token money. Like standard money, it is unlimited legal tender, and like the token money, its face value is greater than its intrinsic value. The Indian rupee is said to be a note printed on silver (now nickel).

Paper Money:

In modern times, metallic money is supplemented, or replaced, by paper money. The use of paper money has many advantages. It economizes the use of precious metals. It is convenient to carry and easy to store. Its value can be kept steady by properly controlling its issue. It is of great fiscal advantage to the government. A government can tide over a period of difficulty by the issue of paper money. Hence it has largely replaced coins.

In early times, when notes were introduced, they were backed by an exactly equal amount in gold or silver kept in reserve by the issuing authority. Such notes could be exchanged for coins when needed and did nothing more than represent coins. They were called representative paper money. American gold certificates (Greenbacks) were of this type. This practice was very expensive and is no more current now.

Paper money is not wholly backed by specie (i.e., precious metal) now. Only proportional reserves are maintained and a good deal of the paper money rests on people’s confidence in the word of the issuing authority, be it the Government or the Central Bank of the country. Such a currency is called fiduciary issue (i.e., depending on trust or confidence).


The total notes in circulation in India as on the last Friday of June 1984 amounted to Rs. 21,777 crores. This amount was backed by nearly Rs. 226 crores worth of gold, supplemented by foreign securities worth Rs. 1,564 crores and securities of the Government of India of the value of Rs. 19,974 crores. Thus, Indian currency is largely of the nature of fiduciary issue

Paper money can be convertible or inconvertible. If the issuing authority promises to convert notes into standard money on demand, it is called ‘convertible paper money’. But, sometimes, after an over-issue of paper money in an emergency like war, the currency authority feels unable to convert its notes into coins.

Then it breaks its promise of converting notes into standard money, and thereby makes the money ‘inconvertible’ or fiat money (money by order). When the link with metal is broken, there is a tendency to over-issue paper money. Its value then depreciates. Prices shoot up, which results in suffering for the people with fixed incomes.

Indian notes are convertible into the standard money of the country— rupees—as and when desired by holders. But it should be clearly noted that the rupee coins in India are themselves only token coins. The Indian rupee has been called a note printed on silver. One-rupee notes are not convertible into rupee coins—they are treated as rupees. They are issued by the Government of India, while all other notes are issued by the Reserve Bank of India.