How Credit Cards Fit in Monetary System - Essay Example

No: How credit cards fit in Monetary System? As the human race realized the importanceof economics, different mediums of exchange are used. First barter system was introduced in which products are exchanged with other products. However, some defects were present in the barter system like unequal medium of exchange, unavailability of the certain products, etc. In order to fulfill the defects in the barter system, stone and metallic coins were introduced. The utilization of stone and metallic coins changed the behavior of the economics. People had more appropriate methods of exchange and thus currency was created. With the advent of money product and services are categorized by the money and exchange of the product and services made the businesses to rise. With the growth in the business, stone and metallic coins changed their shape to currency notes, which are considered as the modern medium for exchange. Now banks introduced the credit and debit cards that link the person’s bank account and can be used instead of currency notes. The seller deducts the money from the bank account. Master, visa, debit and credit cards have the similar objectivity. However, with the advent of such technologies, frauds are increased and thus there is need to build a prevention system against the frauds and fake use of such products like electronic money, paper money, credit cards, etc. In this paper, I will determine “How credit cards fit into monetary system?” Money is an easier system of getting things and availing services with less effort, it is a way of organizing the behavior of society; money has become an integral part of culture and no doubt is a necessity (Jevons 45). Money is not the only medium of exchange, but it is one the most reliable and dependable way of making purchases with in the minimum time. There were some other medium in use to purchase goods in past, but with the passage of time, money made its place and become an important medium of exchange. Money is something of great value which makes us able to buy the goods of our desire and make us able to fulfill our dreams with relatively less effort and in minimum time (Newlyn 38). The importance of money increased with the time and it also changed its shape, become modern and adopted a new face. The old paper money and coin money is replaced with its new type of money, the plastic money which is also known as electronic money. Plastic money in form of credit card and debit card has made the payments easier. And this electronic money is predicted to grow up quickly. Electronic money has made transactions and shopping easier for the people and credit cards are one of the most adopted types of electronic money. Buyer can make payment or can get any service through the credit card issued to him or her by his or her bank on credit (Jevons 72-73). The major reason for changing the shape of the money is to support the people who have to expense more and to prevent the fake currency to enter the economic system. It is difficult to make fake copy o to simple paper money. Most of the users of credit card use to think that credit cards are the part of the stock an economy own, but in point of fact, credit cards remained away from the measure of money’s quantity but still the acceptance of credit card has been increased in the entire world. Electronic money is a new form of money which is well adopted by the people. It is not the real money but does all the functions which money can do for you. Credit card is one of the biggest adopted types of electronic money which performs all the functions same as paper money does (Newlyn 57). Total Cards in Circulation in US 1 2 3 4 5 American Express credit MasterCard Credit MasterCard Debit Visa Credit Visa Debit 50.6 million -- up from 48.9 million at yearend 2010. 176 million -- up from 143 million at yearend 2010. 129 million -- up from 119 million at yearend 2010. 261 million as of Sept. 30, 2011 -- down from 269 million, as of Sept. 30, 2010. 392 million as of Sept. 30, 2011 -- down from 399 million, as of Sept. 30, 2010. Source: http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php#ixzz1uMbtz5g5 Credit card is just a method of deferring payment, a way of settling debts in an accepted way. This makes it clear that credit card is not a method of payment; it is just a settlement of debt which must be paid in some point of future. It is nothing less than an innovation by which users can get his desired product on a term of making payment in future. Adoption rate of credit card is increasing rapidly with the growth of economy. A bank issues you a credit card; you do shopping and utilize your credit card, bank pays for it and after some time your credit bill become due which you might pay through your bank account. Although debit card is also lie under the head of plastic money, but its working and method of payment is completely different from the credit card. When you use debit card to make payments, it automatically withdraws money from your bank account (Leonard 112). Debit card does not support the future payment idea and make the payment right away without postponing it. Debit card works same as you are using your check book to withdraw money from your bank account. Electronic money used present monetary forms to work and due to this, electronic money is able to provide same value of money as paper money does. One of the analysts has called credit card a Democratization of Debt. Now after becoming addicted to credit cards, it is almost impossible for many people to imagine world without credit cards. The use of electronic money will probably bring more innovations in the world and it will remain continue in an evolutionary way (Leonard 129). Day by day an increase in the usage of credit cards can be seen as according to Sam in his article, “Credit Card Usage is on Fire Again”, it is stated that in the first quarter of 2011, people used the credits cards about nearly 8.2 %; in the second quarter, the usage got increased and it was 9 % while in the third quarter of 2011, the usage became 10.6 %, which clearly indicates the increasing demand of credit cards in our daily lives. He further informs that according to CNN, the credit card usage will increase to 63 % by the year 2016 (Sam 2011). In the non-cash economy, credit plays a vital role which is not consisted on barter system. Credit transitions are more adoptable now even for the persons who were unable to buy the products of their choice in the history due to the shortage of cash in their purse. Credit has made it easy for people to buy a product or get a service on a promise and agreement to pay for that in some point of future along with an amount of interest applicable on the used amount. It would not be possible without the money to buy any product, but the invention of credit has made it possible on a specific cost plus an interest amount. In this way, the utilization of credit and such facilities benefited the customers but also the banks and other organizations that are involved in the process. Facility of credit has unlocked many opportunities for the people as now they can diversify towards the betterment and can make their living style more suitable to their needs (The dti 6). However, there are also some disadvantages of the credit system. Form the economic point of view, credit is making the people to buy products without concerning about the money in the pocket, which makes them to expense more on the products and pay the interest of the amount they have taken that would make them worry more about the rate of interest they have to pay. However, banks and credit card companies are making the interest rate lower, so that the system would have little troubles and anyone can have a credit card. The overall impact of the credit in the economy is good, as it raised the standard of living of the people. Monetary system is a well programmed and organized mechanism by which government give money to the economy. The involved institutes in this system usually are the central bank, commercial bank and mint of that country. Monetary exchange is a method which people use to trade for buying goods in exchange of money. There is the central bank behind each single bank working in a state and thus central bank of a country is liable to set the terms and conditions for the use of that money it provides to the economy. Governments back the central bank up and central banks make the rules regarding the credit cards to build a clean economy which can meet all their necessary needs (The dti 12). Governments of different states have already done a lot of work to get this done. Government authorities play a vital role in providing a plat form to its economy, to its people and to its enterprises. Government authorities of each country use to make a frame work for balancing their economy according to the situation of that economy. Many constructive and safety schemes have been introduced by many government to implement in their economy, not only to prevent fraudulent acts related to the credit cards but also to give best and dependable facilities to their people. Credit cards are not effective on the supply of the money but it can be effective in case of money’s demand, as it can increase the demand for money. Presently, there are some acts implemented in many countries regarding the use of the credit (The dti 13). Works Cited Jevons, William Stanley. Money and the Mechanism of Exchange. London: Henry S. King, Oxford University Press, 1875. Leonard, Barry (ed.). Use of Credit Cards by Small Businesses and the Credit Card Market for Small Businesses: Congressional Report. London: Diane Publishing, 2011. Newlyn, W.T. Theory of Money. London: Oxford University Press, 1971. Sam. Credit Card Usage is on Fire again. 2011. Accessed 8 May 2012. The dti, Making Credit Market Works / A Policy Framework of for Consumer Credit, South Africa, 2003. Accessed 3 May 2012. Read More