Sunday, November 06, 2011

Qualities / Characteristics of Good Money

Following are the qualities or characteristics which good money should possess:
  1. General Acceptability: Good money is accepted by all because it serves as a medium of exchange. Metallic money is acceptable due to its utility and value. Gold and silver coins had general acceptability. The holder can use it as money or as metal. He does not lose value in both cases.                                                                                                                                                                         
  2. Malleable: A good money material must be malleable. A metal is melted and then coins are minted. The proper designs are made on it. The money material, which can be melted, is fit for making coins. The malleable materials have impression on its face and back for recognition.
  3. Elastic: The good material has the quality of elasticity. The business needs from season to season. Paper money possess the quality of expansion and contraction of money supply.
  4. Recognizable: Good money is recognized either by sight or touch. The printing of notes is secret. The imitation is not possible, because the process of coloring and the quality of paper are always in the hands of central bank. The general public is familiar with the various kinds of notes.
  5. Durable: Money should be durable. The money must not lose its value with the passage of time. Metals are most durable as compared to other forms of money. The gold and silver do not wear out quickly but it can be treated as durable due to replacement by the bank.
  6. Portable: Good money must be portable easily. It should have more value in small quantity. The passenger must feel easy while taking money with them.
  7. Storable: A good money material is storable for for meeting the future demand. The minimum space and lowest storing expenses are necessary for keeping the money material. The rupee notes and coins have this quality.                  .
  8. Standardized: The good money material is of standardized nature and quality of its material does not undergo great change.
  9. Stable: Money must have stable value because it serve as a standard for measuring the value of other things. A change in its value brings change in the prices of goods and services. The public confidence is developed if value of money is stable. The money having ever-changing value is not liked by the people.                           
  10. Divisible: The money is always divisible without losing its value. The small units of money are needed for making the smallest payments. The metallic money is to make nominal payments in paisa. Public confidence develops due to this quality of money.
  11. Difficult to duplicate: Good money is one which is difficult to duplicate. There should be no danger of fake issuance of money.
  12. Scarce: The scarcity is the quality of good money material. Good money is always scarce. Money must be limited in supply as compare to demand for it. This quality induces the people to have more and more money for meeting their basic necessities of life.
  13. Homogenous: Good money must be of the same quality and quantity. The unit of money must be of the respects otherwise there will be confusion in buying and selling of goods and services. The color and size of money material help the people to deal in the market.
  14. Economical: The good money material has economical quality. The cost of printing currency notes and minting coins must be lower. The money system cannot last for a longer period if it is too much costly.
  15. High Value: The money material should possess high value in small bulk, so that it can be conveniently carried and handled.
  16. Effective Supervision: The good money is one that can be effectively supervised by a central monetary authority. It is of such a nature that central authority is able to keep records of the amount of money in circulation and the pattern of its distribution.
  17.  Government Support: The good money material must be supported by the government. The people accept even fiat money (money issued without keeping any metallic reserves) due to the government support. The government's backing to money creates a sense of confidence.
Conclusion:-After discussing the essential qualities of a good money material, we find that so far not a single commodity has been discovered which possess all the attributes given above in their entirety. Gold and silver do satisfy of the conditions of standard coinage. These have been discarded in the past in favor of paper currency and bank money. Some material is yet to be found which can serve as ideal money.