Money and Currency Systems

Everything comes back to demand and supply in finance. But it is very important to understand that what is money? You will understand everythings with just one concept. If you see all over the world, why does anyone give you money. Anyone will give you money only when you give them value or do their work. You get salary in office only when you do their work or gives them value. Shopkeeper also get money only when they give you products in exchange. So in a way, money is equal to the value. And money is represented by different things from time to time. In eartier time, people used to get their work done by giving food grains. Gradually people started to show the interest in things that don’t get damaged for a long time or whose value is more like gold. But traveling with gold, adulteration with gold and maintaining its security is very inconvenient. The government has given an option where you don’t have to carry your gold. Deposits the gold with the government. The government will take care of is security. You will get a receipt inexchange which is also called a promissory onte. And you can trade based on that receipt. You don’t have to roam around with gold. The receipt was converted into paper money eventually. In reality, this paper money doesn’t have its own value. This is just a piece of paper. The value of this money increases, when the government promiss you that you will go anywhere in India with this and you will get the exact same amount that is written on it. This is the different between normal paper and currency. The government of india promiss you by signing that I an promising to give this much money to the bearer. And this proise has a value that everyone trust this. When demonetization happened, the government took back the promise from 500 and 1000 notes. And as soon as it took its promise back. The notes of 500 and 1000 became paper. People started to trade in paper currency. With the primice of the government. But when we want to trade the country. Then what will happen in this case? When US and India will trade. Then on what things, the trade will be done? You are going to purchase something from the US. And you will say that this is a red-colored note and we call it rupee. And we are giving you a promise. Then why will they agree to that? And why will we take their dollars? And assume in some situation that we took their currency. Then what will we do with the currency. Money become money there is its acceplance. Every country faces the same problem that there were no currency that is trusted by every country. Assume you brought the US dollar after trading with the US. Now you are required to trade with Russia. Now Russia is saying that it will not take US dollar. In this case, what happened is that the US dollar is beneficial only in trading with the US. Because there was no currency that was trusted by every country. But one thing was good at that time, every country trusted gold and silver. But it was not that easy to carry this much gold and silver for trading.

To solve this. Gold standard was brought. In this, the currency of the country was attached to gold. What is the meaning of attached? It is a hypothetical situation so the rule was made that a country can print the same amount of notes as gold. So that if a country wants to get the gold after giving the currence. In this meeting , two organization called IMF and IBRD are made. The work of IBRD was to help the countries which are destroyed in the war. Rebuilt them and stabilize their economy. It is know as the world Bank on today’s date. The purpose of the IMF is to facilatate trade between countries . Even today if a country gets stuck economically then these two organization support them. It was decided in this meeting that the countries don’t have gold then the countries can trade in US dolldollars. Why US dollars and not in other currencies ? Because the US was the only nation that had this much gold it can circulate the gold of the US valu all over the world. And on the same day, the US also announced. Anyone can take the gold by bringing US dollar to us or can take the US dollar by bringing gold. And one ounce of gold was value at 35 dollar. Every country is good at one or other resources then it can increaincrease the reserves of dolldollars. By trading with the US. And having the reserves of dollars is equal to having gold reserves. Which can be converted by a councountry at any time. It has become a way of trading. In 1971, US president. Richard Nixon removed the dolldollar -linked with gold. This means the gold cannot be converted into a dollar. This is also called Nixon Shock. It was a very big shock for the world .

Why is the value of some countries more and some countries less? Who decides this? During time, maximihm gold reached the US. But gradually all the countries tried their best of their capacity to improve their economy. In 1947, one dollar was equal to one rupe. On today’s date, it is equal to 76 Rs. So why did this happen? Countries are trading in US dollars in place of gold. Why in US dollars and not in other currencies? When demonetization was done, the government took its promise back from 500 and 1000Rs notes. The government can print how much soever currency. Then what is the reason behind the government not ending poverty by printing notes?. Onec Zimbabwe has also done the same things in order to improve the economy. It started to distribute the currency among the people. Their economy worsens instead of improving. People used to go to but a loaf of bread with loads of money. Children used to go buy more chocolate. Do only inflation will increase with the government printing notes. It benefits only when the resources and service increase. And when the government keeps prining notes then only inflation will increase. And it’s not like the prices of one things increase and inflation will increase. When the prices of overall goods increases, then the inflation increases. If you see it then your kept money decreases when the inflation increases. It the inflation is 5% then it means that the thing which you are getting at 100Rs. Maybe its price was 95 Rs earlier. Ef you pick the historic data then you will get a clear picture of how inflation has emptied the pockets of people. And this is the reason. Why people invest in different places.