Question

Money by providing the crucial intermediate step eliminates the need for double coincidence of wants. Justify the statement highlighting the significance of the modern form of money in India.

Answer 1

1. Double coincidence of wants is an essential feature in a barter system that directly exchanges goods without the use of money. In contrast, in an economy where money is in use, money by providing the crucial intermediate step eliminates the need for double coincidence of wants.
2. People with the help of money can purchase whatever they need. Goods or other items are no longer required for exchange. We refer to money as a medium of exchange because it serves as an intermediary in the exchange process.
3. Modern forms of money include currency—paper notes and coins. Unlike the things that were used as money earlier, modern currency is not made of precious metals such as gold, silver and copper. Furthermore, unlike grains and cattle, modern currency is not used for everyday purposes. The modern currency has no intrinsic value.
4. The country's government has authorised the currency, making it an accepted medium of exchange. In India, the Reserve Bank of India issues currency notes on behalf of the central government. Indian law prohibits any other individual or organisation from issuing currency. Moreover, the law legitimizes the rupee as an irrevocable medium of payment for all transactions in India. No individual in India can legally refuse a payment in rupees. Therefore, people widely accept the rupee as a medium of exchange.