Kinds of Money and Measures of Money Supply

Money has changed form as economies have grown more complex. Broadly, its evolution runs from commodity money (a useful/scarce good itself used as money, e.g. cattle, grain, shells in early societies) to metallic money (coins of gold, silver or other metals, valued by their metal content) to paper money (currency notes, today issued by the Reserve Bank of India and accepted mainly on the trust/authority backing them rather than any metal reserve) to credit money (cheques, demand drafts, and bank deposits withdrawable on demand) and, most recently, plastic money and e-money (debit/credit cards and digital payment systems such as UPI, which transfer bank-deposit money electronically without physical currency changing hands).

Money is also classified by its legal standing: legal tender money must be accepted in settlement of a debt by law — this can be limited legal tender (coins, acceptable only up to a specified amount) or unlimited legal tender (currency notes, acceptable for any amount) — while non-legal-tender (optional) money, such as a cheque, is accepted only by mutual agreement between the parties, not by legal compulsion.

Measuring the money supply. Money supply is the total stock of money held by the public (excluding the government and the banking system itself) at a given point in time. Because money exists in several forms of differing liquidity, the Reserve Bank of India (RBI) publishes several measures, moving from the most liquid (narrowest) to the least liquid (broadest):