Money Essay In Tamil

Tamil Wikipedia: A case study

L.BalaSundaraRaman
(accepted for presentation at Wikimania 2009)

Acknowledgment

The author thanks Natkeeran, Ravishankar, Selvakumar, Karthickbala, and fellow Tamil Wikipedia editors for feedback and other inputs.

Abstract

Three distinct growth phases have been identified in this case study of Tamil Wikipedia since late 2003. Several distinct characteristics of the Wikipedia and its editors are identified. Outreach efforts and sibling projects are also discused in this study. Challenges and future plans are outlined.

Introduction

Tamil is a classical language spoken by more than 78 million people across the world with a rich literary tradition spanning millennia. Significant acclaimed Tamil literature has existed for over two thousand years.[1] The Tamil language Wikipedia has 18,021 articles (as of writing), a number of them of good quality. This case study attempts to characterise the Tamil Wikipedia, its editorial team, growth trends, challenges faced, and plans to take it to the next important stage.

History

Extant Tamil literature consists of works on poetics, philosophy, ethics, grammar, etc. Notable among the early Tamil encyclopaedias were Abidhaanakosam,[2] written by Muthuthambiyaar and published in Jaffna in 1902, and Abidhaana Chindhaamani,[3] a 1050 page work which took 42 years of determined work by Singaravelanar and published in Chennai in the year 1910. Later, a 18-volume encyclopaedia on science and a 15-volume work on humanities were published by the Thanjavur Tamil University,[4] in an intended series of 20 and 15 volumes respectively. The first comprehensive modern encyclopaedia was published from 1954 to 1968 as a 10 volume set.[5] It was a collaborative effort by scholars, philanthropists and the Government of Tamil Nadu. More recently, in 2007, a collection of 28,000 articles from the concise edition of Encyclopaedia Britannica was translated and published in Tamil by Vikatan Publishers.[6]

Tamil Wikipedia was started on September 30, 2003 by an anonymous person by posting a link to their Yahoo! Group and the text manitha maembaadu (மனித மேம்பாடு), fittingly, a phrase that means human development, on the Main Page.[7] However, for several weeks after that, the site had an all-English interface with little activity. Mayooranathan, in response to a request posted in a mailing list, completed 95% of the localisation between November 4, 2003 and November 22, 2003. He made some anonymous edits alongside. On November 12, 2003 Amala Singh from the United Kingdom wrote the first article in Tamil, but with an English title Shirin Ebadi.[8] The earliest editor who continues to edit actively, Mayooranathan, has written more than 2760 articles and has kept the project alive during an intervening period when practically nobody else was editing. Around five active editors including the author joined the project in the second half of 2004. Some occasional editors turned out to become regular editors and the Wiki started growing steadily. Bugs were reported to fix the interface, policies partially deriving from the English Wikipedia were initiated, and editors started to specialise in tasks like stub sorting, creating templates, copyediting, wikifying, translation, original writing etc. Even at this early stage, the Tamil Wikipedia had a global editorial team representing almost every continent.

After registering a period of high linear growth in several metrics on a lower base, the Tamil Wikipedia started witnessing, around April 2007, a low linear growth on a higher base in several quantitative metrics. This period, however, also showed a perceivably super-linear growth in article quality aspects like length, standard of prose, image use, inline citation usage, etc. Late 2008 to early 2009 was a period characterised by a near constant number of active and very active editors, a steady influx of new and occasional editors, a healthy, enthusiastic and continuity-preserving churn, and, above all, optimism for a promising future.

Growth

The three distinct phases noted in the History section are shown in the accompanying chart. The number of very active Wikipedians (not in chart) has also grown well. With the recent workshops and the planned events, we hope to hit a hockey-stick growth phase in the second half of 2009.

The premise behind the hope is the following: a linear growth in active editors results in a super linear growth in number of articles due to accumulative effect. Other metrics like article length etc., might improve at a greater rate. Given this, if the number of active users increases super-linearly due to the recent outreach efforts and the consequent mainstream media attention, content growth will really take on to a higher plane.

Editor profiles/demographics

Nirojan, from Canada, one of the youngest editors, wrote more than two thousand articles on Tamil films, ancient tamil kings, theatre and drama
Prof. VK, the senior most editor, has so far written 188 articles in Mathematics, Astronomy and Philosophy, contributing from the US and India.

Tamil Wikipedia has had a diverse set of editors from the beginning. Editors came from various disciplines like Architecture, Biotechnology, Economics, Electronics, Information Technology, Mathematics, Music, Social Welfare etc. The editors are from various professions—engineers, scientists, academics, students, administrators, self-employed people, etc. Editors are aged between 15[9] and 85 years, with a non-uniform but remarkably not power law distribution in between. Educational qualifications and income levels too vary across the spectrum.

More information regarding the profiles of editors as well as visitors to Tamil Wikipedia will come out when the results of the UNU-MERIT survey[10] are published. Based on some available monitoring tools, it has been identified that there are approximately 60,000 page requests each day.

Distinct characteristics

  • General cordiality and assumption of good faith among regular editors
  • Quality focus from early on[11] (concern[12] about article diversity when Ganeshbot, a bot similar to Rambot of the English Wikipedia, was proposed)
  • Early emphasis on citing sources[13][14]
  • Individual editors writing full-length articles later copyedited by others
  • Specialist roles chosen by editors even when a handful of editors were actively editing
  • 'In the news' and 'Selected anniversaries' sections meticulously updated, almost on a daily basis, by a dedicated user[15]
  • Several topics, on diverse areas, are being covered for the first time in Tamil. Tamil Wikipedia editors endeavour to attain currency of knowledge, by writing articles on topics that are emerging in science, technology, politics etc. As is customary, especially in agglutinative languages, suitable terminologies are coined as needed from existing words and roots.
  • In English Wikipedia, the primary and nearly the singular motivation for editors, is to document and spread knowledge. English as a medium is incidental. However, in the case of Tamil Wikipedia, most of the editors view this as a way to spread precious knowledge in Tamil. Many editors are motivated for being able to enrich the modern Tamil corpus, by adding quality content in Tamil.

Challenges

  • Low internet penetration among the majority of the population
  • Low awareness about Tamil typing tools
  • Low awareness about Tamil Wikipedia
  • Less than 2% editors female
  • Disconnect between skilled writers and internet access
  • Still not reached critical mass of tech-savvy editors who can fix interface issues

Outreach

Except a small initiative to display Wikipedia badges in blogs in late 2004, and one instance of media outreach, there have not been any planned activities to bring more readers and editors to Tamil Wikipedia. But, from the beginning of 2009, three workshops[16] were organised by Wikipedians during which the participants were introduced to the Tamil Wikipedia, explained about its philosophy and usefullness, and tutored on typing in Tamil and basic editing. Half a dozen introductory talks were delivered in meetups of other groups. These have been conducted in colleges including the prestigious Indian Institute of Science,[17] workplaces,[18] and special interest clubs. These workshops and talks have shown a good impact by way of bringing new active editors from various backgrounds.

Based on the feedback from each workshop the following have been observed:

  • Tutor-learner ratio should be around 1:5 for useful practical training. Having multiple tutors handling different aspects of editing is helpful.
  • A classroom is good, a computer science lab environment is better.
  • Asking some uninitiated person from the audience to come forward and edit is a good approach--convinces others about ease of use, gives feedback to the tutors about difficulties faced by new editors.
  • If a remote editor leaves a message of appreciation at the new user's talk page as soon as they make the first trial edit, it encourages them a lot.
  • Articles to cite as examples should be picked based on audience composition.
  • Emailing all those who attended, thanking them as well as inviting them to edit, leads to more conversions.
  • In the Indian Wikipedia context, the first session after introduction should be about typing in the Indian language concerned.


Following is the agenda of a typical workshop:

  • Introductions by the host and the Tamil Wikipedia member who acted as an interface with the host
  • A short presentation on what Wikipedia is, its history, philosophies, software, etc.,
  • A tutorial on Tamil typing tools
  • Tea break
  • Tutorial on editing through someone from the audience. The newbie picks the topic and content.
  • Q & A session

Sibling projects

Other Tamil Wiki projects are Wiktionary, Wikinews, Wikisource, Wikibooks, and Wikiquotes. However, Tamil Wiktionary is the one project that has matured and grown well. Mainly seeded by an automated bot[19] adding entries from technical dictionaries, the Tamil Wiktionary reached more than 1,00,000 entries and was featured on the main Wiktionary page for sometime. It has attracted more editors since then, and, at this stage, its sustenance and future growth is guaranteed. Tamil, with a long and rich literary tradition, has numerous public domain works available. Because of this, there is ample scope for Wikisource to grow. The other Tamil Wiki projects are still in bootstrapping stage and there is also some new-found interest in starting a Wikispecies project in Tamil as well.

Future plans

LanguageOff count> 200 CharMean bytesLength 0.5KLength 2KSizeWordsImages
Tamil16 k16 k161981%21%74 MB3.0 M3.0 k
Bengali19 k12 k111349%11%61 MB3.1 M8.5 k
Marathi21 k6.4 k62320%5%44 MB1.8 M0.769K
Telugu42 k13 k57816%5%64 MB3.0 M2.6 k
Hindi24 k14 k112835%11%76 MB4.6 M1.4 k
Malayalam8.3 k7.8 k242578%30%58 MB2.1 M5.4 k
Kannada6.1 k5.3 k128253%14%23 MB0.965M0.211K
Tamil's rank51212233
Table showing comparison of top Indian language Wikipedias (as of Nov 2008)

Tamil and Malayalam Wikipedias top the quality metrics. Tamil Wikipedians monitor the changes regularly.

  • firming up policies and guidelines
  • media outreach
  • bringing out an offline collection of wiki articles
    • The 28,000 articles in the Tamil edition of the concise Britannica, currently being sold in the market, are of stub-quality. A collection of 5,000 selected articles from Tamil Wikipedia, published after manual perusal, will definitely have a number of takers. In fact, a collection of wildlife articles for school children and an assorted collection[20] of good articles given to scientific research students have been well-received.
  • liaising with the Indian Wikimedia Chapter being formed and other bodies
  • conducting article-writing contests, local conferences, etc.,

Conclusion

A case study on Tamil Wikipedia has revealed 3 distinct growth phases so far. Important characterisations of the editors as well as the Wiki itself has been made. Main problems coming in the way of its growth have been identified and future plans are outlined. Conducting similar studies on other language Wikipedias that are in a similar phase of growth could reveal commonalities as well as distinct characteristics.

Notes

  1. ↑Kamil V. Zvelebil (1992). Companion Studies to the History of Tamil Literature. BRILL Academic. பக். 12. ISBN 9004093656. "p12 - ...the most acceptable periodisation which has so far been suggested for the development of Tamil writing seems to me to be that of A Chidambaranatha Chettiar (1907–1967): 1. Sangam Literature - 200BC to AD 200; 2. Post Sangam literature - AD 200 - AD 600; 3. Early Medieval literature - AD 600 to AD 1200; 4. Later Medieval literature - AD 1200 to AD 1800; 5. Pre-Modern literature - AD 1800 to 1900..." 
  2. ↑Abidhaanakosam in the Noolaham archive
  3. ↑Author Jeyamohan on Abidhaana Chindhaamani
  4. ↑http://www.tamiluniversity.ac.in/english/links/encyclopaedia.html
  5. ↑Ma. Po. Sivagnanam. 1978 The history of Tamil Development after (Indian) independence. Chennai: Poongodi Publications.
  6. ↑"Karunanidhi releases Encyclopaedia Brittanica in Tamil". The Hindu. 2007-04-29. http://www.hindu.com/2007/04/29/stories/2007042902840300.htm. பார்த்த நாள்: 2009-05. 
  7. ↑http://ta.wikipedia.org/w/index.php?title=முதற்_பக்கம்&diff=prev&oldid=5
  8. ↑The article titled in English was moved to the Tamil title, and the redirect page was subsequently deleted. It has been recently restored for the record.
  9. ↑Karthikeyan, a school student from Singapore, wrote several articles on herbs from this user account and anonymously prior to that.
  10. ↑Möller, Erik (2008-10-24). "Multilingual Wikipedia Survey Launched". Wikimedia Foundation. பார்த்த நாள் 2009-04-16.
  11. ↑Tamil Wikipedia quality monitor
  12. ↑"Wikipedia discussion prior to bot approval". பார்த்த நாள் 2009-04-16.
  13. ↑Citation guidelines
  14. ↑"Articles using "Cite journal" template". பார்த்த நாள் 2009-04-16.
  15. ↑Kanags maintains these two sections
  16. ↑Homepage for workshops
  17. ↑Details of the workshop held at the IISc
  18. ↑"Wikipedia Academy in Bangalore". My Bangalore. 2009-02-05. http://mybangalore.com/article/wikipedia-academy-in-bangalore.html. பார்த்த நாள்: 2009-04-25. 
  19. ↑SundarBot project page
  20. ↑Booklet given to participants of the workshop held at the Indian Institute of Science

References

Palm leaf manuscript from Tolkāppiyam—the earliest of extant works in Tamil, which described the grammar of written Tamil.
Data up to Jan 2009 (18,027 articles as of April 30)
827 editors have made just one edit and 4 editors have made more than 10,000 edits each. However, this curve is flattening over time. A point to be kept in mind is that many newcomers have made a significant contribution within a shorter duration than the established users.
The top-4 editors have made over 46% of the edits. One goal of the outreach programs is to make the tail long and diverse enough to make a significant contribution.

For other uses, see Money (disambiguation).

Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context.[1][2][3] The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, sometimes, a standard of deferred payment.[4][5] Any item or verifiable record that fulfills these functions can be considered as money.

Money is historically an emergent market phenomenon establishing a commodity money, but nearly all contemporary money systems are based on fiat money.[4] Fiat money, like any check or note of debt, is without use value as a physical commodity. It derives its value by being declared by a government to be legal tender; that is, it must be accepted as a form of payment within the boundaries of the country, for "all debts, public and private".[6]

The money supply of a country consists of currency (banknotes and coins) and, depending on the particular definition used, one or more types of bank money (the balances held in checking accounts, savings accounts, and other types of bank accounts). Bank money, which consists only of records (mostly computerized in modern banking), forms by far the largest part of broad money in developed countries.[7][8][9]

Etymology

The word "money" is believed to originate from a temple of Juno, on Capitoline, one of Rome's seven hills. In the ancient world Juno was often associated with money. The temple of Juno Moneta at Rome was the place where the mint of Ancient Rome was located.[10] The name "Juno" may derive from the Etruscan goddess Uni (which means "the one", "unique", "unit", "union", "united") and "Moneta" either from the Latin word "monere" (remind, warn, or instruct) or the Greek word "moneres" (alone, unique).

In the Western world, a prevalent term for coin-money has been specie, stemming from Latin in specie, meaning 'in kind'.[11]

History

Main article: History of money

The use of barter-like methods may date back to at least 100,000 years ago, though there is no evidence of a society or economy that relied primarily on barter.[12] Instead, non-monetary societies operated largely along the principles of gift economy and debt.[13][14] When barter did in fact occur, it was usually between either complete strangers or potential enemies.[15]

Many cultures around the world eventually developed the use of commodity money. The Mesopotamian shekel was a unit of weight, and relied on the mass of something like 160 grains of barley.[16] The first usage of the term came from Mesopotamia circa 3000 BC. Societies in the Americas, Asia, Africa and Australia used shell money – often, the shells of the cowry (Cypraea moneta L. or C. annulus L.). According to Herodotus, the Lydians were the first people to introduce the use of gold and silver coins.[17] It is thought by modern scholars that these first stamped coins were minted around 650–600 BC.[18]

The system of commodity money eventually evolved into a system of representative money.[citation needed] This occurred because gold and silver merchants or banks would issue receipts to their depositors – redeemable for the commodity money deposited. Eventually, these receipts became generally accepted as a means of payment and were used as money. Paper money or banknotes were first used in China during the Song dynasty. These banknotes, known as "jiaozi", evolved from promissory notes that had been used since the 7th century. However, they did not displace commodity money, and were used alongside coins. In the 13th century, paper money became known in Europe through the accounts of travelers, such as Marco Polo and William of Rubruck.[19] Marco Polo's account of paper money during the Yuan dynasty is the subject of a chapter of his book, The Travels of Marco Polo, titled "How the Great Kaan Causeth the Bark of Trees, Made Into Something Like Paper, to Pass for Money All Over his Country."[20] Banknotes were first issued in Europe by Stockholms Banco in 1661, and were again also used alongside coins. The gold standard, a monetary system where the medium of exchange are paper notes that are convertible into pre-set, fixed quantities of gold, replaced the use of gold coins as currency in the 17th–19th centuries in Europe. These gold standard notes were made legal tender, and redemption into gold coins was discouraged. By the beginning of the 20th century almost all countries had adopted the gold standard, backing their legal tender notes with fixed amounts of gold.

After World War II and the Bretton Woods Conference, most countries adopted fiat currencies that were fixed to the U.S. dollar. The U.S. dollar was in turn fixed to gold. In 1971 the U.S. government suspended the convertibility of the U.S. dollar to gold. After this many countries de-pegged their currencies from the U.S. dollar, and most of the world's currencies became unbacked by anything except the governments' fiat of legal tender and the ability to convert the money into goods via payment. According to proponents of modern money theory, fiat money is also backed by taxes. By imposing taxes, states create demand for the currency they issue.[21]

Functions

In Money and the Mechanism of Exchange (1875), William Stanley Jevons famously analyzed money in terms of four functions: a medium of exchange, a common measure of value (or unit of account), a standard of value (or standard of deferred payment), and a store of value. By 1919, Jevons's four functions of money were summarized in the couplet:

Money's a matter of functions four,
A Medium, a Measure, a Standard, a Store.[22]

This couplet would later become widely popular in macroeconomics textbooks.[23] Most modern textbooks now list only three functions, that of medium of exchange, unit of account, and store of value, not considering a standard of deferred payment as it is a distinguished function, but rather subsuming it in the others.[4][24][25]

There have been many historical disputes regarding the combination of money's functions, some arguing that they need more separation and that a single unit is insufficient to deal with them all. One of these arguments is that the role of money as a medium of exchange is in conflict with its role as a store of value: its role as a store of value requires holding it without spending, whereas its role as a medium of exchange requires it to circulate.[5] Others argue that storing of value is just deferral of the exchange, but does not diminish the fact that money is a medium of exchange that can be transported both across space and time. The term "financial capital" is a more general and inclusive term for all liquid instruments, whether or not they are a uniformly recognized tender.

Medium of exchange

Main article: Medium of exchange

When money is used to intermediate the exchange of goods and services, it is performing a function as a medium of exchange. It thereby avoids the inefficiencies of a barter system, such as the "coincidence of wants" problem. Money's most important usage is as a method for comparing the values of dissimilar objects.

Measure of value

Main article: Unit of account

A unit of account (in economics)[26] is a standard numerical monetary unit of measurement of the market value of goods, services, and other transactions. Also known as a "measure" or "standard" of relative worth and deferred payment, a unit of account is a necessary prerequisite for the formulation of commercial agreements that involve debt.

Money acts as a standard measure and common denomination of trade. It is thus a basis for quoting and bargaining of prices. It is necessary for developing efficient accounting systems.

Standard of deferred payment

Main article: Standard of deferred payment

While standard of deferred payment is distinguished by some texts,[5] particularly older ones, other texts subsume this under other functions.[4][24][25] A "standard of deferred payment" is an accepted way to settle a debt – a unit in which debts are denominated, and the status of money as legal tender, in those jurisdictions which have this concept, states that it may function for the discharge of debts. When debts are denominated in money, the real value of debts may change due to inflation and deflation, and for sovereign and international debts via debasement and devaluation.

Store of value

Main article: Store of value

To act as a store of value, a money must be able to be reliably saved, stored, and retrieved – and be predictably usable as a medium of exchange when it is retrieved. The value of the money must also remain stable over time. Some have argued that inflation, by reducing the value of money, diminishes the ability of the money to function as a store of value.[4]

Properties

To fulfill its various functions, money must have certain properties:[27][28]

  • Fungibility: its individual units must be capable of mutual substitution (i.e., interchangeability).
  • Durability: able to withstand repeated use.
  • Portability: easily carried and transported.
  • Cognizability: its value must be easily identified.
  • Stability of value: its value should not fluctuate.

Money supply

Main article: Money supply

In economics, money is a broad term that refers to any financial instrument that can fulfil the functions of money (detailed above). These financial instruments together are collectively referred to as the money supply of an economy. In other words, the money supply is the number of financial instruments within a specific economy available for purchasing goods or services. Since the money supply consists of various financial instruments (usually currency, demand deposits and various other types of deposits), the amount of money in an economy is measured by adding together these financial instruments creating a monetary aggregate.

Modern monetary theory distinguishes among different ways to measure the money supply, reflected in different types of monetary aggregates, using a categorization system that focuses on the liquidity of the financial instrument used as money. The most commonly used monetary aggregates (or types of money) are conventionally designated M1, M2 and M3. These are successively larger aggregate categories: M1 is currency (coins and bills) plus demand deposits (such as checking accounts); M2 is M1 plus savings accounts and time deposits under $100,000; and M3 is M2 plus larger time deposits and similar institutional accounts. M1 includes only the most liquid financial instruments, and M3 relatively illiquid instruments. The precise definition of M1, M2 etc. may be different in different countries.

Another measure of money, M0, is also used; unlike the other measures, it does not represent actual purchasing power by firms and households in the economy.[citation needed] M0 is base money, or the amount of money actually issued by the central bank of a country. It is measured as currency plus deposits of banks and other institutions at the central bank. M0 is also the only money that can satisfy the reserve requirements of commercial banks.

Creation of money

In current economic systems, money is created by two procedures:

Legal tender, or narrow money (M0) is the cash money created by a Central Bank by minting coins and printing banknotes.

Bank money, or broad money (M1/M2) is the money created by private banks through the recording of loans as deposits of borrowing clients, with partial support indicated by the cash ratio. Currently, bank money is created as electronic money.

In most countries, the majority of money is mostly created as M1/M2 by commercial banks making loans. Contrary to some popular misconceptions, banks do not act simply as intermediaries, lending out deposits that savers place with them, and do not depend on central bank money (M0) to create new loans and deposits.[29]

Market liquidity

Main article: Market liquidity

"Market liquidity" describes how easily an item can be traded for another item, or into the common currency within an economy. Money is the most liquid asset because it is universally recognised and accepted as the common currency. In this way, money gives consumers the freedom to trade goods and services easily without having to barter.

Liquid financial instruments are easily tradable and have low transaction costs. There should be no (or minimal) spread between the prices to buy and sell the instrument being used as money.

Types

Currently, most modern monetary systems are based on fiat money. However, for most of history, almost all money was commodity money, such as gold and silver coins. As economies developed, commodity money was eventually replaced by representative money, such as the gold standard, as traders found the physical transportation of gold and silver burdensome. Fiat currencies gradually took over in the last hundred years, especially since the breakup of the Bretton Woods system in the early 1970s.

Commodity

Main article: Commodity money

Many items have been used as commodity money such as naturally scarce precious metals, conch shells, barley, beads etc., as well as many other things that are thought of as having value. Commodity money value comes from the commodity out of which it is made. The commodity itself constitutes the money, and the money is the commodity.[30] Examples of commodities that have been used as mediums of exchange include gold, silver, copper, rice, Wampum, salt, peppercorns, large stones, decorated belts, shells, alcohol, cigarettes, cannabis, candy, etc. These items were sometimes used in a metric of perceived value in conjunction to one another, in various commodity valuation or price system economies. Use of commodity money is similar to barter, but a commodity money provides a simple and automatic unit of account for the commodity which is being used as money. Although some gold coins such as the Krugerrand are considered legal tender, there is no record of their face value on either side of the coin. The rationale for this is that emphasis is laid on their direct link to the prevailing value of their fine gold content.[31]American Eagles are imprinted with their gold content and legal tender face value.[32]

Representative

Main article: Representative money

In 1875, the British economist William Stanley Jevons described the money used at the time as "representative money". Representative money is money that consists of token coins, paper money or other physical tokens such as certificates, that can be reliably exchanged for a fixed quantity of a commodity such as gold or silver. The value of representative money stands in direct and fixed relation to the commodity that backs it, while not itself being composed of that commodity.[33]

Fiat

Main article: Fiat money

Fiat money or fiat currency is money whose value is not derived from any intrinsic value or guarantee that it can be converted into a valuable commodity (such as gold). Instead, it has value only by government order (fiat). Usually, the government declares the fiat currency (typically notes and coins from a central bank, such as the Federal Reserve System in the U.S.) to be legal tender, making it unlawful not to accept the fiat currency as a means of repayment for all debts, public and private.[34][35]

Some bullion coins such as the Australian Gold Nugget and American Eagle are legal tender, however, they trade based on the market price of the metal content as a commodity, rather than their legal tender face value (which is usually only a small fraction of their bullion value).[32][36]

Fiat money, if physically represented in the form of currency (paper or coins) can be accidentally damaged or destroyed. However, fiat money has an advantage over representative or commodity money, in that the same laws that created the money can also define rules for its replacement in case of damage or destruction. For example, the U.S. government will replace mutilated Federal Reserve Notes (U.S. fiat money) if at least half of the physical note can be reconstructed, or if it can be otherwise proven to have been destroyed.[37] By contrast, commodity money which has been lost or destroyed cannot be recovered.

Coinage

Main article: Coin

These factors led to the shift of the store of value being the metal itself: at first silver, then both silver and gold, and at one point there was bronze as well. Now we have copper coins and other non-precious metals as coins. Metals were mined, weighed, and stamped into coins. This was to assure the individual taking the coin that he was getting a certain known weight of precious metal. Coins could be counterfeited, but they also created a new unit of account, which helped lead to banking. Archimedes' principle provided the next link: coins could now be easily tested for their fine weight of metal, and thus the value of a coin could be determined, even if it had been shaved, debased or otherwise tampered with (see Numismatics).

In most major economies using coinage, copper, silver and gold formed three tiers of coins. Gold coins were used for large purchases, payment of the military and backing of state activities. Silver coins were used for midsized transactions, and as a unit of account for taxes, dues, contracts and fealty, while copper coins represented the coinage of common transaction. This system had been used in ancient India since the time of the Mahajanapadas. In Europe, this system worked through the medieval period because there was virtually no new gold, silver or copper introduced through mining or conquest.[citation needed] Thus the overall ratios of the three coinages remained roughly equivalent.

Paper

Main article: Banknote

In premodern China, the need for credit and for circulating a medium that was less of a burden than exchanging thousands of copper coins led to the introduction of paper money, commonly known today as banknotes. This economic phenomenon was a slow and gradual process that took place from the late Tang dynasty (618–907) into the Song dynasty (960–1279). It began as a means for merchants to exchange heavy coinage for receipts of deposit issued as promissory notes from shops of wholesalers, notes that were valid for temporary use in a small regional territory. In the 10th century, the Song dynasty government began circulating these notes amongst the traders in their monopolized salt industry. The Song government granted several shops the sole right to issue banknotes, and in the early 12th century the government finally took over these shops to produce state-issued currency. Yet the banknotes issued were still regionally valid and temporary; it was not until the mid 13th century that a standard and uniform government issue of paper money was made into an acceptable nationwide currency. The already widespread methods of woodblock printing and then Pi Sheng's movable type printing by the 11th century was the impetus for the massive production of paper money in premodern China.

At around the same time in the medieval Islamic world, a vigorous monetary economy was created during the 7th–12th centuries on the basis of the expanding levels of circulation of a stable high-value currency (the dinar). Innovations introduced by Muslim economists, traders and merchants include the earliest uses of credit,[38]cheques, promissory notes,[39]savings accounts, transactional accounts, loaning, trusts, exchange rates, the transfer of credit and debt,[40] and banking institutions for loans and deposits.[40]

In Europe, paper money was first introduced in Sweden in 1661. Sweden was rich in copper, thus, because of copper's low value, extraordinarily big coins (often weighing several kilograms) had to be made. The advantages of paper currency were numerous: it reduced transport of gold and silver, and thus lowered the risks; it made loaning gold or silver at interest easier, since the specie (gold or silver) never left the possession of the lender until someone else redeemed the note; and it allowed for a division of currency into credit and specie backed forms. It enabled the sale of stock in joint stock companies, and the redemption of those shares in paper.

However, these advantages held within them disadvantages. First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more of it than they had specie to back it with. Second, because it increased the money supply, it increased inflationary pressures, a fact observed by David Hume in the 18th century. The result is that paper money would often lead to an inflationary bubble, which could collapse if people began demanding hard money, causing the demand for paper notes to fall to zero. The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a standing army. For these reasons, paper currency was held in suspicion and hostility in Europe and America. It was also addictive, since the speculative profits of trade and capital creation were quite large. Major nations established mints to print money and mint coins, and branches of their treasury to collect taxes and hold gold and silver stock.

At this time both silver and gold were considered legal tender, and accepted by governments for taxes. However, the instability in the ratio between the two grew over the course of the 19th century, with the increase both in supply of these metals, particularly silver, and of trade. This is called bimetallism and the attempt to create a bimetallic standard where both gold and silver backed currency remained in circulation occupied the efforts of inflationists. Governments at this point could use currency as an instrument of policy, printing paper currency such as the United States Greenback, to pay for military expenditures. They could also set the terms at which they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount that could be redeemed.

By 1900, most of the industrializing nations were on some form of gold standard, with paper notes and silver coins constituting the circulating medium. Private banks and governments across the world followed Gresham's Law: keeping gold and silver paid, but paying out in notes. This did not happen all around the world at the same time, but occurred sporadically, generally in times of war or financial crisis, beginning in the early part of the 20th century and continuing across the world until the late 20th century, when the regime of floating fiat currencies came into force. One of the last countries to break away from the gold standard was the United States in 1971.

No country anywhere in the world today has an enforceable gold standard or silver standard currency system.

Commercial bank

Main article: Demand deposit

Commercial bank money or demand deposits are claims against financial institutions that can be used for the purchase of goods and services. A demand deposit account is an account from which funds can be withdrawn at any time by check or cash withdrawal without giving the bank or financial institution any prior notice. Banks have the legal obligation to return funds held in demand deposits immediately upon demand (or 'at call'). Demand deposit withdrawals can be performed in person, via checks or bank drafts, using automatic teller machines (ATMs), or through online banking.[41]

Commercial bank money is created through fractional-reserve banking, the banking practice where banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand.[42][page needed][43] Commercial bank money differs from commodity and fiat money in two ways: firstly it is non-physical, as its existence is only reflected in the account ledgers of banks and other financial institutions, and secondly, there is some element of risk that the claim will not be fulfilled if the financial institution becomes insolvent. The process of fractional-reserve banking has a cumulative effect of money creation by commercial banks, as it expands money supply (cash and demand deposits) beyond what it would otherwise be. Because of the prevalence of fractional reserve banking, the broad money supply of most countries is a multiple larger than the amount of base money created by the country's central bank. That multiple (called the money multiplier) is determined by the reserve requirement or other financial ratio requirements imposed by financial regulators.

The money supply of a country is usually held to be the total amount of currency in circulation plus the total value of checking and savings deposits in the commercial banks in the country. In modern economies, relatively little of the money supply is in physical currency. For example, in December 2010 in the U.S., of the $8853.4 billion in broad money supply (M2), only $915.7 billion (about 10%) consisted of physical coins and paper money.[44]

Electronic or digital

Main article: Electronic money

Many digital currencies, in particular Flooz and Beenz, had gained momentum before the Dot-com bubble of the early 2000s. Not much innovation occurred until the conception of Bitcoin in 2009, which introduced the concept of a cryptocurrency.

Monetary policy

Main article: Monetary policy

When gold and silver are used as money, the money supply can grow only if the supply of these metals is increased by mining. This rate of increase will accelerate during periods of gold rushes and discoveries, such as when Columbus discovered the New World and brought back gold and silver to Spain, or when gold was discovered in California in 1848. This causes inflation, as the value of gold goes down. However, if the rate of gold mining cannot keep up with the growth of the economy, gold becomes relatively more valuable, and prices (denominated in gold) will drop, causing deflation. Deflation was the more typical situation for over a century when gold and paper money backed by gold were used as money in the 18th and 19th centuries.

Modern day monetary systems are based on fiat money and are no longer tied to the value of gold. The control of the amount of money in the economy is known as monetary policy. Monetary policy is the process by which a government, central bank, or monetary authority manages the money supply to achieve specific goals. Usually the goal of monetary policy is to accommodate economic growth in an environment of stable prices. For example, it is clearly stated in the Federal Reserve Act that the Board of Governors and the Federal Open Market Committee should seek "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."[45]

A failed monetary policy can have significant detrimental effects on an economy and the society that depends on it. These include hyperinflation, stagflation, recession, high unemployment, shortages of imported goods, inability to export goods, and even total monetary collapse and the adoption of a much less efficient barter economy. This happened in Russia, for instance, after the fall of the Soviet Union.

Governments and central banks have taken both regulatory and free market approaches to monetary policy. Some of the tools used to control the money supply include:

  • changing the interest rate at which the central bank loans money to (or borrows money from) the commercial banks
  • currency purchases or sales
  • increasing or lowering government borrowing
  • increasing or lowering government spending
  • manipulation of exchange rates
  • raising or lowering bank reserve requirements
  • regulation or prohibition of private currencies
  • taxation or tax breaks on imports or exports of capital into a country

In the US, the Federal Reserve is responsible for controlling the money supply, while in the Euro area the respective institution is the European Central Bank. Other central banks with significant impact on global finances are the Bank of Japan, People's Bank of China and the Bank of England.

For many years much of monetary policy was influenced by an economic theory known as monetarism. Monetarism is an economic theory which argues that management of the money supply should be the primary means of regulating economic activity. The stability of the demand for money prior to the 1980s was a key finding of Milton Friedman and Anna Schwartz[46] supported by the work of David Laidler,[47] and many others. The nature of the demand for money changed during the 1980s owing to technical, institutional, and legal factors[clarification needed] and the influence of monetarism has since decreased.

Counterfeit

Main article: Counterfeit money

Counterfeit money is imitation currency produced without the legal sanction of the state or government. Producing or using counterfeit money is a form of fraud or forgery. Counterfeiting is almost as old as money itself. Plated copies (known as Fourrées) have been found of Lydian coins which are thought to be among the first western coins.[48] Before the introduction of paper money, the most prevalent method of counterfeiting involved mixing base metals with pure gold or silver. A form of counterfeiting is the production of documents by legitimate printers in response to fraudulent instructions. During World War II, the Nazis forged British pounds and American dollars. Today some of the finest counterfeit banknotes are called Superdollars because of their high quality and likeness to the real U.S. dollar. There has been significant counterfeiting of Euro banknotes and coins since the launch of the currency in 2002, but considerably less than for the U.S. dollar.[49]

Laundering

Main article: Money laundering

Money laundering is the process in which the proceeds of crime are transformed into ostensibly legitimate money or other assets.[50] However, in a number of legal and regulatory systems the term money laundering has become conflated with other forms of financial crime, and sometimes used more generally to include misuse of the financial system (involving things such as securities, digital currencies, credit cards, and traditional currency), including terrorism financing, tax evasion and evading of international sanctions.

See also

References

A sample picture of a fictional ATM card. The largest part of the world's money exists only as accounting numbers which are transferred between financial computers. Various plastic cards and other devices give individual consumers the power to electronically transfer such money to and from their bank accounts, without the use of currency.
Song Dynasty Jiaozi, the world's earliest paper money
Money Base, M1 and M2 in the U.S. from 1981 to 2012
Printing paper money at a printing press in Perm
Gold coins are an example of legal tender that are traded for their intrinsic value, rather than their face value.
Paper money from different countries
Banknotes with a face value of 5000 of different currencies
A check, used as a means of converting funds in a demand deposit to cash

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