Forms of Money

Merits of Paper Money

• 1. Economical
• 2. Elasticity of money supply
• 3. Promotes economic growth
• 4. Internal price stability
• 5. Helpful in emergency
• 6. Regulation of exchange rates
• 7. Uniform quality

Economical

• Under paper standard, the central bank has not to keep gold or silver for issuing of the paper notes.
• The cost of printing paper notes is also very small.
• It is thus, most economical form of monetary standard.

2.Elasticity Of Money Supply

• As the money supply is not backed with gold or silver, therefore, the monetary authority can easily manage its supply according to the requirements of trade and industry in the country.

3.Promotes Economic Growth

• Under paper standard, the monetary authority is free to determine its monetary policy.
• It therefore regulates the money supply in such a way that productive resources of the country are utilized to their maximum and greater economic growth achieved.

4.Internal Price Stability

• Under paper standard, the monetary authority can maintain stability in internal price level by making necessary expansion or contraction in money supply according to the economic conditions.

5.Helpful In Emergency

• Paper money is also useful in times of war when huge funds are needed to finance it.
• It is also helpful to meet any financial crises.
• The monetary authority by expanding or contracting the money supply achieve this objective.

6.Regulation Of Exchange Rates

• Under paper standard, the international exchange rates are fixed by purchasing power of the respective countries.
• Paper currency is an effective and automatic regulator of exchange rates between the countries.

7. Uniform quality

• The paper money has a uniform quality and the holder least bothers for possession of new money coins.
• With the use of paper money, the loss of precious metals due to wear and tear is also solved.