Module 3 Money
Module 3 Money
Module 3 Money
Functions of Money
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Commodity Money
Perishable
not uniform
not pure
foreigners may not accept
Metallic Money
Traders & Kings: stamped their marks on gold nuggets for uniformity &
trust.
Indo Greek kings & Kushana kings issued gold coins, but Gupta Gold
coins most spectacular- king is playing Veena, shooting animals,
standing with wife
Delhi Sultanate Kings: Silver Tanka. Sher Shah Suri Rupiyah silver
coin.
Akbar: Muhr.
There is free coinage of standard money and the mint is open to the
public. It is unlimited legal tender and money of account of a country.
Standard coins are generally made of gold and silver.
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Paper Money
Fiat money:
1. It’s in the form of coin / currency Notes / (or sometimes virtual
crypto coin).
2. It is issued by the order of a King / Queen / Government / Central
Bank.
Government issues with powers of Coinage Act: All coins upto ₹ 1,000. ₹ 1
Note signed by Finance Secretary
When fiat money (currency/ coins) is legally valid for all debts &
transactions throughout the country, such Fiat Money is called a Legal
tender
The demonetized ₹1000 note in a museum is a fiat money (because
was a currency note issued by RBI), but no longer a legal tender
(because legally it is banned for transactions).
G-Sec, T-Bill, Shares, Bonds, DD, Cheque, ATM, Cards, Kirana coin,
Casino coin, Bitcoins are NOT Fiat Money, and Not legal tenders.
Commemorative Coins = Fiat yes but not legal tender unless notified
to be used as legal tenders.
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Although in real life, Finance Act 2017: “Cash transactions for less than
Rs.2 lakh only,” Beyond that use Cheque, DD, NEFT etc. else penalty=
entire amount.
Demonetisation
Demonetization of Fiat Money (Previously 1946, 1978) -
8/Nov/2016
Finance Ministry → Dept of Economic Affairs gazette notification to
ban the “Specified Bank Notes” (SBN) of Mahatma Gandhi series ₹
500 and 1000.
Specified Bank Notes (Cessation of Liabilities) Act 2017= RBI not
required to honor “I promise to pay…”.
Old notes can’t be kept except for research or numismatics or
museum- and that too in limited amount!
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Over Draft: When person’s bank balance goes zero, still he’s allow to
draw money (as a loan). Pradhan Mantri Jan-Dhan account has Overdraft
upto Rs 10,000/- with certain conditions.
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RBI’s RTGS:
Transfer minimum 2 lakh to Rs. 2000 crores (SBI). Meant for
corporates and high value transactions.
Only working days 8AM to 5:30PM(SBI)
Service fee + GST applicable.
RBI’s NEFT
Transfer upto Rs.10 lakhs (SBI). Settles net amount between banks
at interval of 30 min from 8 am to 7 pm on working days.
Total 23 settlements in a day.
Service fee + GST applicable
NPCI’s IMPS
24x7 via mobile, internet. Minimum ₹ 1 to 2 lakhs (SBI)
While RTGS/NEFT require IFSC code so can be offered only by
BANKS, but IMPS can be offered by Banks as well as Prepaid
Payment Instruments (PPI) / mobile-wallet companies such as
Phonepe, Mobikwik etc.
Service fee + GST applicable.
Clearing Services
RBI’s National Electronic Clearing Service (ECS) & NPCI’s National
Automated Clearing House (NACH) for Monthly utility bills, salaries,
premiums etc. automatically paid from bank account.
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BBPS
Bharat Bill Payment system for automated monthly payments of utility
bills
NACH
National Automated Clearing House for bulk monthly payments of
utility bills, dividends, salaries, pension / insurance premiums etc.
NFS
National Financial switch runs the ATM network, IMPS, UPI and BHIM
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UPI 1.0
QR Scan & Pay to merchants.
You can link Current Account (CA) Savings Account (SA) for direct
transfer of money without storing in ‘wallet’ first. (unlike PayTM)
Such app can have Push transaction (e.g. Remittance to family),
Pull Transaction (e.g. monthly bill deduction by Electricity Co.) or
even Bill sharing among friends.
Examples of UPI based app: SBI’s SBIBuddy, Axis Bank’s AxisPay
and NPCi’s own BHIM.
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BHIM (2016)
It works on Android, iOS/Apple mobile phones as an APP, and even
on non-smart (=basic feature) phones using *99# USSD-
Unstructured Supplementary Service Data.
Bank to bank / peer to peer transaction using mobile phone
(xyz@upi). No need to install multiple apps for each bank account
(SBIBuddy, AxisPay etc) just one BHIM app to use all such bank
accounts. App has 3 factor authentication system.
Your money stays in bank account and earns interest. It’s not
stored in ‘wallet outside your bank account’ as it happens in
Mobikwick, Phonepe etc. No cards involved so no MDR or such
hidden charges.
Sweden: “Swish” app to make their country 100% cashless by
2020.
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BHIM 2.0?
Donation’ gateway, increased transaction limits for high value
transactions, linking multiple bank accounts, offers from
merchants, option of applying in IPO, gifting money.
It also supports three additional languages — Konkani, Bhojpuri
and Haryanvi — over and above the existing 13.
BharatQR (2016)
While PayTM QR code will not work with Phonepe app (interoperability
issue), the BharatQR Quick Response code works with all UPI based
apps & BHIM
RuPay (2016)
Rupee + Payment = RuPay card is world’s 7th payment gateway
similar to Mastercard, Visacard, China’s Union Pay- but at less
service charges.
Works in 3 channels: ATM, PoS, Online. Used by banks, railway and
even dairies. Rupay debit card given free with PMJDY (Jan Dhan)
Bank account.
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FASTags are prepaid rechargeable tags that allow for automatic toll
collection at electronic toll collection gates using Radio-frequency
Identification (RFID)technology.
2013 onwards Govt required vehicle manufactures to install RFID
tags on windscreens.
2017: National Highways Authority of India (NHAI, a statutory body
under Highways ministry) launched 2 mobile apps MyFASTag and
FASTag Partner to facilitate Electronic Toll Collection
Persons loads up ₹ ₹ in his mobile app → actives RFID tag in his car
→ when it passes through highway toll-booth, the money is
automatically deducted = faster traffic movement. (and hidden
benefit: tracking of vehicle theft, criminal’s movement etc)
FASTag is vehicle specific and once it is affixed to a vehicle, it cannot
be transferred to another vehicle.
NPCi's National Electronic Toll Collection (NETC) provides
technological support.
Highways Ministry is also trying to bring inter-operability of the
FASTags i.e. single FASTag can be used for paying ₹
o at State Highways Toll Plaza (under State Governments’
purview) as well as
o at National Highways Toll Plaza (under Union Government’s
purview).
o From 15th January 2020, it shall be mandatory for all vehicles
passing through tolls to have FASTags. Vehicles without
FASTags will have pay up 2x normal rates at toll gates.
Interoperability Problem
Interoperability is the ability of customers to transact across
commercially and technically independent payment platforms.
Legal complications under Payment & settlement system act 2007,
so, we don’t have full interoperability; we can’t transfer money
between one wallet to another, can’t use wallet to pay all type of
taxes, fees, insurance premiums etc.
This is an obstacle to ‘cashless-economy’. So, 2018-October, RBI
issued guidelines for interoperability with KYC check, customer
grievances mechanism etc.
As per the guidelines, where PPIs are issued in the form of wallets,
interoperability across PPIs shall be enabled through UPI and where PPIs
are issued in the form of cards, the cards shall be affiliated to the
authorised card networks.
Significance:
The guidelines, while boosting the e-wallet segment, would also ensure
the safety and accuracy of the transfer of money by individuals from one
wallet to another.
The guidelines would also ensure that not only the customer’s money
remains safe but when the transition happens from one e-wallet app to
another, it reflects utmost speed and accuracy for the interoperability to
be effective and efficient.
2020-Feb: RBI issued a draft proposal, “if any Indian company interested
to compete in this (NPCi-like) retail payment segment, we’ll license them
as new umbrella entity subject to certain Criterion
Idea
More companies like NPCi → more competition → more Innovation and
cheaper services for users. But, still in the draft stage
1) Credit Card
It allows holder to make purchase on credit (=loan), even if he may /
may not have sufficient balance in his bank account at the time of
purchase.
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2) Debit Card
Customer does shopping using debit card → bank transfer ₹ ₹ from
customer’s own bank account to merchant. So, if he has insufficient
balance, he may not be able to make purchase. Although nowadays
ecommerce sites allow debit-card based EMIs
Debit card= shopping ONLYIF you have ₹ in bank balance,
Debit card can be used to withdraw ₹ ₹ from ATM from your
existing bank balance. So, it’s not ‘borrowing’.
4) Pre-paid card
It’s a subtype of debit card. While debit card is linked to a given
bank account, a person can buy pre-paid card even without having
account in the given bank e.g. IRCTC’s UBI Prepaid Card which can
be used for buying rail tickets, meals etc. Backend support
provided by Union Bank of India (UBI) and NPCI’s Rupay gateway.
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Card Tokenization
Amazon, Paytm & other sites / app allow users to store their card
information (owner's name, card number, expiry date) so next
transaction can be finished faster without having to re-type those
details.
But such facility also exposes customer to the dangers of hacking,
privacy, identity theft, misuse so, Tokenization = Token number is
generated for a given credit/debit card.
Card customer gives the token number during any type of online /
physical shop transaction → so his original card number, its expiry
date etc. are masked/hidden from the third party seller / wallet /
app / portal = more security and privacy. RBI released guidelines
in 2019-Jan.
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1. Bank label: Bank itself owns and operates the ATM network.
2. White label: White Label ATMs are like normal ATM. However, cash
deposit or cash acceptance facility is not permitted at the WLAs.
o At White Label ATM you will not find logo of any bank like ICICI,
SBI etc. You will find logo of White Label ATM operator on these
ATMs.
o An Individual can use their ATM-cum-debit cards, credit card
for the cash withdrawal at these ATMs.
o You can use WLA for cash withdrawal, utility bill payment, mini
statement and PIN change.
o In case of fail transaction while using white label ATM you need
to report to card issuing bank. ATM card issuing bank is
responsible of resolving conflict.
o Cash Management at WLA will be done by sponsor bank.
Sponsor bank will make an arrangement with NBFC for the cash
at respective locations.
o The Grievance Redressal Mechanism will be the same as that of
normal bank ATMs.
3. Brown Label
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4. Micro-ATM
Bankmitra manually makes entries of deposit and withdrawal for
customer. He uses handheld device for using card & Aadhar biometrics.
NPCi’s AEPS technology gives backend support.
MDR
It is the fee that a merchant must pay to his (acquirer) bank for every
credit / debit card transaction. MDR hurts merchants’ profit margin,
discourages them from adopting PoS terminals and QR based digital
payment systems.
2017-18: RBI puts ceilings on MDR fees to encourage digital
economy
WEF 1/1/18: Ministry of Electronics & Information Technology
(MEITY) started MDR subsidy to acquirer bank on bills upto ₹ 2,000,
if payment made via Debit Card/BHIM, UPI/Aadhaar-Pay through a
POS machine or QR “scan & pay” or online mode of payment.
o Scheme valid for 2 years. Direct benefit: Encourage digital
payments ecosystem.
o Indirect Hidden benefit: Datamining of tax evading merchants
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The proposed fund will have all major banks and payment
companies transferring a percentage of their proceeds from fees
accrued from processing digital payments called the Merchant
discount rates, or MDR.
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World Bank
2018-Aug: World Bank launched World’s first blockchain bond called
“Kangaroo Bonds ” in Australia, denomination: Australian Dollars →
public invests, gets ~2% interest after 2 years.
Blockchain bond requires less cost in server / database
/paperwork maintenance unlike traditional bonds.
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