Complete NCERT Notes for CBSE Board Students
Money plays an important role in our daily life. We use money to buy goods and services, make payments and save for the future. In modern economies, money has replaced the old barter system and made exchange easier and more convenient.
Banks and credit institutions also play a vital role in providing financial support to people and promoting economic development.
Before the use of money, people exchanged goods and services directly through the barter system.
The barter system is a system in which goods are exchanged for other goods without the use of money.
A farmer may exchange wheat with a tailor in return for clothes.
Double coincidence of wants refers to a situation in which two persons agree to exchange goods only when each person possesses what the other person needs.
This limitation made the barter system inconvenient and led to the development of money.
Money is anything that is widely accepted as a medium of exchange for buying and selling goods and services.
Money eliminates the difficulties of the barter system and makes transactions easier.
Money performs several important functions in an economy.
Modern forms of money include currency and deposits in banks. These are accepted as a medium of exchange and are authorised by the government.
Currency includes paper notes and coins issued by the Reserve Bank of India (RBI) and the Government of India.
People keep their money in banks in the form of deposits. These deposits can be withdrawn whenever required and are widely used for transactions.
People usually keep their extra money in banks in the form of deposits. Banks provide safety to money and also pay interest on these deposits. Depositors can withdraw their money whenever required through cheques, ATM cards, debit cards or digital banking services.
Since bank deposits are widely accepted as a means of payment, they are considered an important form of modern money.
Banks accept deposits from people and use a major portion of these deposits to provide loans to individuals, businesses and industries. In this way, banks act as intermediaries between depositors and borrowers.
The interest charged on loans is generally higher than the interest paid on deposits. The difference between these two rates forms an important source of income for banks.
Credit can have both positive and negative effects depending on how it is used and whether the borrower can repay the loan successfully.
Suppose a farmer takes a loan to buy better seeds and fertilizers. Due to a good harvest, the farmer earns higher income and repays the loan easily. In this case, credit plays a positive role.
If crops fail because of natural disasters, the farmer may not earn enough income to repay the loan. As a result, the borrower may fall into debt. In such cases, credit becomes a burden.
Thus, credit is useful only when it leads to increased income and productive activities.
The conditions under which a loan is provided are known as the terms of credit.
Collateral refers to an asset such as land, building, jewellery or fixed deposits that borrowers pledge to lenders as a guarantee for repayment.
If the borrower fails to repay the loan, the lender has the right to sell the collateral to recover the amount.
People obtain loans from various sources, which are broadly classified into formal and informal sources.
Formal sources are those institutions that are supervised and regulated by the Reserve Bank of India (RBI).
Informal sources operate outside the control of the government and RBI.
| Basis | Formal Sources | Informal Sources |
|---|---|---|
| Control | Regulated by RBI | Not regulated |
| Interest Rate | Lower | Higher |
| Rules and Procedures | Follow legal rules | No fixed rules |
| Risk of Exploitation | Low | High |
| Examples | Banks and Cooperatives | Moneylenders and Traders |
Self Help Groups (SHGs) are small groups of people, usually consisting of 15 to 20 members, who come together to save money regularly and provide loans to members from their collective savings. These groups play an important role in providing financial support to poor households, especially in rural areas.
Most Self Help Groups are formed by women, and they help members become financially independent and improve their standard of living.
Self Help Groups have become an effective source of credit for poor families. They not only provide financial assistance but also strengthen cooperation and social unity among members.
Although banks and cooperative societies provide safer and cheaper loans, many people still depend on informal sources of credit. Therefore, there is a need to increase the availability of formal credit.
The Reserve Bank of India (RBI) supervises and regulates formal credit institutions to ensure fair lending practices.
The Reserve Bank of India is the central bank of the country. It controls and supervises the banking system and ensures that banks function properly.
| Topic | Main Idea |
|---|---|
| Barter System | Exchange of goods without money. |
| Money | Medium of exchange accepted by all. |
| Bank Deposits | Safe storage of money and source of loans. |
| Credit | Borrowing money for various purposes. |
| Formal Credit | Provided by banks and cooperatives under RBI supervision. |
| Informal Credit | Provided by moneylenders and traders without regulation. |
| Self Help Groups | Provide loans and encourage savings among members. |
| RBI | Regulates the banking system and controls money supply. |
Money and Credit │ ├── Barter System │ │ │ └── Double Coincidence of Wants │ ├── Money │ │ │ ├── Medium of Exchange │ ├── Store of Value │ └── Standard of Deferred Payments │ ├── Modern Forms of Money │ │ │ ├── Currency │ └── Bank Deposits │ ├── Banks │ │ │ ├── Deposits │ └── Loans │ ├── Credit │ │ │ ├── Terms of Credit │ └── Collateral │ ├── Sources of Credit │ │ │ ├── Formal Sources │ └── Informal Sources │ ├── Self Help Groups │ └── Reserve Bank of India (RBI)
Remember the sequence:
Barter System → Money → Bank Deposits → Credit → Terms of Credit → Formal and Informal Sources → Self Help Groups → RBI
Questions based on Double Coincidence of Wants, Collateral, Formal and Informal Credit and Self Help Groups are frequently asked in CBSE Board examinations.
Double coincidence of wants refers to a situation where two people are willing to exchange goods only when each possesses what the other wants.
Modern forms of money include currency notes, coins and deposits in banks.
Collateral is an asset kept as security against a loan to guarantee repayment.
Formal sources are regulated by the RBI and charge lower interest rates, whereas informal sources are not regulated and often charge higher interest rates.
The Reserve Bank of India regulates banks, controls money supply and maintains financial stability in the country.