MONEY AND BANKING (Part – I)

Unified Payments Interface (UPI) is an instant real-time payment system developed by National Payments Corporation of India (NPCI) for facilitating inter-bank transactions through mobile phone. UPI allows sending or requesting money between any two bank account through inter-bank payment system. The most likely consequence of implementing the UPI is that mobile wallets will not be necessary for online payments, because customer's mobile number is directly linked with the bank account using bank's 'customized app' which is built on the UPI platform.

A Central Bank digital currency (CBDC) is a form of digital currency issued by country's Central Bank. it is a similar to cryptocurrencies, except that its value is fixed by the Central Bank and its equivalent to the country's fiat currency Governments and Central banks worldwide are exploring the possibility of using government- back digital currencies. Alternative to SWIFT( Society for Worldwide interbank Financial Telecommunication) systems and the U.S dollar are coming from two directions : cryptocurrencies and Central Bank digital currencies. It is possible to make payments in a digital currency without using US dollar or SWIFT system . Countries will be able to directly exchange digital currencies in a bilateral way and without going through SWIFT or similar settlement systems.
A digital currency can be distributed with a condition programmed into is such as a time-frame for spending it. China's digital currency is programmable to have an expiry date, which gives its Central Bank power to effectively control and boost consumption demand or impose negative rate. China is exploring expiration dates with its upcoming digital yuan, or /DCEP, which means the currency will expire if not used in a certain time-frame.
Hence, both given statements are correct.

Bitcoin is a digital currency, that was created in January, 2009 by the mysterious and pseudonymous Satoshi Nakamoto. Bitcoin is a type of cryptocurrency. Bitcoins are not issued or booked by any banks or governments. Bitcoin is one of the first digital currencies to use peer to peer technology to facililate instant payments, in which anyone else with a Bitcoin address. Under this system, online payments can be sent without either side knowing the identity of the other . Hence, option (b) is the correct answer.

Non-Fungible Tokens (NFTs) are assets that have been tokenized via a blockchain. They are unique cryptographic tokens that exist on a blockchain and cannot be replicated. NFTs represent an ownership interest in any tangible or intangible asset. NFTs can represent digital or real-world items like artwork and real estate. They enable the digital representation of physical assets. Hence, statements 1 and 2 are correct.
NFTs and cryptocurrencies are very different from each other. Cryptocurrencies are usually fungible from a financial perspective, meaning that they can be traded or ex- changed, one for another. NFTs shift the crypto paradigm by making each token unique and irreplaceable, making it impossible for one non-fungible token to be 'equal' to an- other. Thus, unlike cryptocurrencies, they cannot be traded or exchanged at equivalency and therefore cannot be used as a medium of commercial transactions. Hence, statement 3 is incorrect.

RBI publishes figures for four alternative measures of money supply, viz. M_{0}, M_{1} M_{2} and M_{3} . M_{3} is known as Broad Money. M_{3} includes:

RBI publishes figures for four alternative measures of money supply, viz. M_{0}, M_{1} M_{2} and M_{3} . M_{3} is known as Broad Money. M_{3} includes:

M_{3}= Currency with the public + Demand deposits with banks + Other deposits with RBI + Time deposits with banks

or M_{3}=M_{1}+ Time deposits with banks

RBI publishes figures for four alternative measures of money supply, viz. M_{0}, M_{1} M_{2} and M_{3} . M_{3} is known as Broad Money. M_{3} includes:

RBI publishes figures for four alternative measures of money supply, viz. M_{0}, M_{1} M_{2} and M_{3} . M_{3} is known as Broad Money. M_{3} includes:

M_{3}= Currency with the public + Demand deposits with banks + Other deposits with RBI + Time deposits with banks

or M_{3}=M_{1}+ Time deposits with banks

M3 = M₁ (Currency with the public + Demand deposits with banks + Other deposits with RBI) + Time deposits with banks, M3 is the most commonly used measure of money supply. It is also known as aggregate money supply (Broad money). Now, if we withdraw Rs.1,00,000, Demand deposits component will fall by Rs. 1,00,000 and CU (Currency held by Public) will increase by Rs. 1,00,000. It means, it leaves the money supply unchanged. Hence, option (d) is the correct answer.

Currency is the most liquid asset because it is easiest for transactions. Time deposit is least liquid because it is fixed for a definite period of time and it cannot be used before its maturity. Demand deposits are more liquid than saving deposits because they can be demanded by the holder from the bank at any time. Hence, option (d) is the correct answer.

The money multiplier describes how an initial deposit leads to a greater final increase in the total money supply. It identifies the ratio of decrease and/or increase in the money supply in relation to the commensurate decrease and/or increase in deposits. Increase in banking habit of the population will lead to more deposits in the banking system and hence, banks have more money to lend out, which leads to the increase in money multiplier. On the other hand, increase in reserve ratios like Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) decreases the money multiplier, while the increase in the population does not necessarily leads to the increase in banking deposits/money multiplier.

In India, we define money multiplier as the ratio of the stock of money or Broad Money (M3) to the stock of high powered money or Reserve Money (Mo or Rm). So if money multiplier is K, then K = M3/Mo or M3/Rm.