What Are The Benefits And Drawbacks Of Using Paper Money?

 What Are The Benefits And Drawbacks Of Using Paper Money?

The significance of money has become so crucial for life that we can’t make do without it. We want money for nearly everything, like food, garments, and lodging. So, making a lot of money is essential to get through life. These days money is doing rounds around BHIM UPI and other online forms of storing cash. But paper money holds several benefits and drawbacks.

The following are some of the benefits:

Cost-effective:

For the authorities, paper currency is free. As a result, currency notes are the most cost-effective medium of exchange. If a country uses paper currency, it does not need to spend money on gold or coin production.

Practical:

The most convenient form of money is paper money. It is possible to carry a considerable amount in one’s pocket without anyone noticing. It may hold a lot of value in a tiny amount of space. Consider a Rs. 1000/- currency note. You can carry it in an online wallet instead of cash in your pocket.

Cohesive:

One of the most crucial characteristics of money is that it must all be of the same type. There are best and terrible coins among the coinage. However, all currency notes are identical. As a result, it is an excellent means of exchange. This exchange also takes place in the form of bank transfer to store or withdraw money.

Constancy:

One can maintain the value of paper money by appropriately managing its circulation. That is why many people argue for managed paper money. Nowadays, UPI net banking is what maintains the new constancy.

Flexibility:

Paper money is most malleable. The currency authority has the power to increase or decrease its quantity. As a result, paper currency can better suit the needs of commerce and industry. For example, you can use it to recharge online with the fintech industry.

Low-Cost Disbursement:

Money in currency notes can be sent from one location to another at a low-cost using insurance coverage.

However, we must not forget money’s drawbacks. Paper Money’s Drawbacks include:

  • Beyond the country of issue, paper currency has no value unless replaced. Even outsiders accept gold and silver coins because they have some intrinsic worth.

  • There is a chance of damage to the paper. Fire could consume it, or the area could get flooded, and you could lose the money. White ants may also destroy it.

  • The fact that the government can issue national currencies easily is a significant disadvantage. When the government is having financial difficulties, there is always the risk of it being over-issued. However, it takes this course, it gains traction and leads to further note printing, and so on, until the paper currency loses all worth.

  • Over-issuing notes, or rising prices, brings with it a slew of negative consequences.

Conclusion: Paper money has no disadvantages as long as it is issued and regulated correctly. All governments give paper currency, and it does not affect them in regular times. It is when it is over-issued that it becomes a significant threat and a curse. It has the potential to spark widespread discontent. Inflation occurs when paper currency is over-issued & prices go up. It has a significant impact on various crucial groups of individuals, such as labourers and stationaries.

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