In modern economy money plays an important role. Through the use of money we buy goods and services and satisfy our needs. So in order to make it more usable and convenient, paper money has produced in the economy. Paper money is made up of paper. Presently it is acceptable all over country. It is particular type of promissory note issued by Reserve Bank which promises to give certain amount to the bearer on demand. Paper money is issued under certain rules and is kept under direction of Central Bank and the International securities Funds. In India use of paper money began in the 19th century.
There are mainly two kinds of paper money :
(I) Convertible paper money – If the issuing authority promise to convert note into a standard money on demand it is called convertible paper money.
(II) Inconvertible paper money – These are those paper money which are not guaranteed to convert of gold or silver by the government.
Advantages of paper money are given below :
• It is easily portable due to its lessor weight.
• It is easy to determine, count and transfer from one place to another.
• It is more flexible than metallic money.
• It is economical.
• Paper money has the character of being uniform.
Paper money is not being from disadvantages. It has following disadvantages :
• Since the supply of paper notes can be easily increased as such there is always fear of inflation.
• Paper notes are less durable. Due to its excess use, it gets torn off and gives trouble to the user. Many times torn paper money is not easily acceptable in the market and this creates trouble to the user of money.
• Paper notes have the limited field of circulation. It circulates only within the country.
• Paper notes have no intrinsic value or commodity value.
From the above advantages and disadvantages it can be said that advantages of paper money far exceed from the disadvantages.