Project Outline

We usually think of currency notes and coins as money. Bank deposits, CDs are an extended version. Credit card, cheques, demand drafts, money orders, travelers checks are all used in lieu of money and can be considered types of money. In addition, there are other financial instruments that represent money or monetary value in various ways, such as bills of exchange, stock certificates, bonds, derivatives, even some life insurance policies and many new creations such as mortgage backed securities Hire purchase and every type of credit including mortgage creates money. Local or complementary currencies are another category. Look for a complete comprehensive list of all the types of financial instruments that have been created and have been or are in use.

Research Info




Money can be defined as a token or object that functions as a medium of exchange that is socially and legally accepted in payment for goods and services and in settlement of debts. Money also serves as a standard of value for measuring the relative worth of different goods and services and as a store of value

Money includes both currency, particularly the many circulating currencies with legal tender status, and various forms of financial deposit accounts, such as demand deposits, savings accounts, and certificates of deposit. In modern economies, currency is the smallest component of the money supply.. The use of money is thought to encourage trade and the division of labour.

History of Money

The use of money evolved out of deeply rooted customs as is shown by the study of primitive forms of money, e.g. cattle, cowrie shells, whales teeth and manillas (ornamental jewellery). The clumsiness of barter was merely one factor in the development of money, and not the most important one. Banking was invented before coins and reached a high level of sophistication in the Egypt of the Ptolomies. Military conquests, such as those of Alexander the Great, spread the use of coins which became the most convenient means of payment.

Warfare and Financial History

From blood money payments in primitive societies to the military-industrial complex of the present day developments in warfare and finance have, unfortunately, been closely connected. Even the word to pay comes from a Latin word meaning to pacify. Warfare played an important part in the spread of the use of coinage and the invention of the national debt, while the adoption of paper money in the West was both a cause of the American Revolution and a means of financing it.

The Significance of Celtic Coinage

The Celts on the Continent and in parts of Britain produced large numbers of coins before the Roman conquest. The Anglo-Saxon invasions put an end to minting in Britain almost completely for nearly two hundred years and in Wales production of coins did not become common until after the English conquest.

The Vikings and Money in England

In an age when a penny was a substantial sum of money literally millions of silver pennies were minted in England to buy off the Viking invaders.

Money in North American History

The British colonies in North America were chronically short of coins and were forced to use various substitutes including wampum, like the native inhabitants, and tobacco. The enthusiastic adoption of paper money and its suppression by the British was a factor in provoking the American revolution, which was financed by hyperinflation. Ever since independence banking has been the subject of political controversy and although the US emerged from the two World Wars as the dominant superpower the US financial system may be in relative decline.

The Origins of the term Dollar and the Dollar Sign

The word "dollar" was used by Shakespeare and derives from "thaler" the name of a European coin. An outline of the convoluted history of central European thalers, Scandinavian dalers, the Spanish peso, the American dollar, and dollars used in Britain and the British Empire, and in China.

Democracy and Government Control of the Money Supply

When coins were the predominant form of payment governments controlled minting. The development of modern banking and paper money broke the government monopoly of money creation and fostered the growth of democracy. Will the advent of electronic money have a similar significance?

Third World Money and Debt in the Twentieth Century

The pressure of a rapidly expanding world population on finite resources is a virtually silent explosion as far as monetarist literature is concerned. The task of enabling millions of the world's poorest men and women to earn a decent living for themselves is the greatest problem facing mankind. Re-anchoring the runaway inflation-ridden currencies of many Third World countries is a prerequisite for successful development.

Standardized coinage

It was the discovery of the touchstone that paved the way for metal-based commodity money and coinage. Any soft metal can be tested for purity on a touchstone, allowing one to quickly calculate the total content of a particular metal in a lump. Gold is a soft metal, which is also hard to come by, dense, and storable. For these reasons gold as a money spread very quickly from Asia Minor where it first gained wide use, to the entire world.

Roman Coin

Using such a system still required several steps and some math. The touchstone allowed you to estimate the amount of gold in an alloy, which was then multiplied by the weight to find the amount of gold alone in a lump. To make this process easier, the concept of standard coinage was introduced. Coins were pre-weighed and pre-alloyed, so as long as you were aware of the origin of the coin, no use of the touchstone was required.

Coins were typically minted by governments in a carefully protected process, and then stamped with an emblem that guaranteed the weight and value of the metal. It was however extremely common for governments to assert that the value of such money lay in its emblem and to subsequently debase the currency by lowering the content of valuable metal. Although gold and silver were commonly used to mint coins, other metals could be used. Ancient Sparta minted coins from iron to discourage its citizens from engaging in foreign trade. In the early seventeenth century Sweden lacked more precious metal and so produced "plate money," which were large slabs of copper approximately 50cm or more in length and width, appropriately stamped with indications of their value.

The Value of metal Coins

Metal based coins had the advantage of carrying their value within the coins themselves - they induced on the other hand manipulations: the clipping of coins in attempts to get and recycle the precious metal. The bigger problem was the simple co-existence of gold, silver and copper coins in Europe's nations. English and Spanish traders valued gold coins at a higher rate of silver coins than their neighbours would do, with the effect that the English gold-based guinea coin began to rise against the English silver based crown in the 1670s and 1680s and with the consequence that silver was ultimately pulled out of England for dubious amounts of gold coming into the country at a rate no other European nation would share. Stability came into the system with national Banks guaranteeing to change money into gold at a promised rate, it did, however, not come easily. The Bank of England risked a national financial catastrophe in the 1730s when customers demanded their money to be changed into gold in a moment of crisis. Eventually London's merchants saved the bank and the nation with financial guarantees.



Barter is often regarded as an old-fashioned means of exchange where an apple grower who needs shoes simply has to find a cobbler. In a pure barter system the apple grower would have to find not just any cobbler but one who happened to want apples at that time. However the inconvenience of barter was just one factor, and in most places was probably not the most significant one, in the origin of money.

Barter and money are not necessarily completely incompatible. One of the most important improvements over the simplest forms of early barter was first the tendency to select one or two particular items in preference to others. This is because that the preferred barter items became partly accepted because of their qualities in acting as media of exchange. Although, of course, they still could be used for their primary purpose of directly satisfying the wants of the traders concerned.

History of barter

In the past, goods were to be exchanged in the goods of another without considering of its money value. To organize production and to distribute goods and services among their populations, many pre-capitalist or pre-market economies relied on tradition, top-down command, or community democracy instead of market exchange organized using barter. Relations of reciprocity and/or redistribution substituted for market exchange. Trade and barter were primarily reserved for trade between communities or countries. It is also used when the monetary system failed to measure the economic value of goods.

Barter becomes more and more difficult as people become dispossessed of the means of production of widely-needed goods. For example, if money were to be severely devalued in the United States, most people would have little of value to trade for food (since the farmer can only use so many cars, etc.). It is used on important transactions between firms or countries to exchange commodities, when monetary constraints are too expensive for the economic actors.


A transaction is possible when coincidence of wants of economic actors enables an exchange cycle between their bids: each party must be able to supply something another party desires. The Barter System is basically a way of trade .Some entities develop a system of intermediaries who can store, trade, and warehouse commodities, but who may suffer economic risk.

Others develop a system with a virtual value unit ("barter dollars," or "trade credits," for example) to measure and balance exchanges, very similar to a monetary system. Multilateral barter is more complex to settle but allows trades that would not be possible with bilateral barter. However with the use of a singular platform - like a barter exchange, bartering amongst businesses is easily facilitated, even if the barter trade is done across borders.

On the west coast of the United States the Beyond Barter organization extends the concept further, to free sharing of services. Although there's no attempt to balance contributions in individual transactions, controls ensure that members are not overburdened.

Barter is done when there is a mutual interest or desire between two or more groups, or parties, of different economic cultures, to trade/exchange goods, knowledges or events that are reciprocally understood as valuable. Barter is the agreement thus arrived at when any possible intermediary system's currency are not useful or fixable in the trade/exchange situation. To exchange events, goods, skills, intercultural valuable knowledge & competence of any kind, whether in regard of craftsmanship, mutual entertainment or spiritual endeavor may be called barter.

Barter card:

The dated barter system, where products and services used to be traded in cashless transactions, is set to get a new lease of life in India with world's largest exchange for such trade, Barter card, foraying in the country early next year. Barring the involvement of cash, a Barter card transaction is similar to those through a credit or debit card.

Members receive a plastic card and an interest-free line of credit. Trade points (in terms of the currency) are credited to member's account upon the sale of goods and services through the exchange. Members use their Barter card transaction card to spend their credit balance or draw on interest-free line of credit, on goods and services from any other member.

Barter card is the world's largest barter exchange and provides business opportunities for companies who barter their goods and services. Unlike credit or debit cards, Barter card needs to be recharged with customers' own goods and services, and not cash.

Corporate Barter

Corporate Barter entails the use of a currency unit called a "trade-credit". The trade-credit must be known and guaranteed (contract to eliminate ambiguity and risk). Trade-credits are redeemed with cash much as a consume can be used to provide full value for asset(s) with an impair men.

Barter can also be done through a barter exchange, A barter exchange steps into the one-to-one relationship that is normal with traditional bartering, allowing businesses to trade with other businesses they have nothing in common with (or where no duality of needs exists). If a restaurant wanted $1500.00 worth of landscaping, but the landscaper did not want to eat at the restaurant (or could not eat $1500.00 worth of food!), a reputable barter exchange would issue trade dollars to the landscaper which he could use to purchase tires, advertising, mulch or other materials or something equally useful to his business.

There are multiple reasons to use a good barter exchange:

Increased purchasing power- Increased revenue - More clients (both from the barter exchange and from cash-business referrals from barter clients)- Better cash flow Greater marketing opportunities - Improved efficiency

Organized barter companies (usually those with national scope) also have many more benefits over conventional advertising methods since they are much more proactive. Barter members call into the exchange brokerage with things they need and the brokers match those needs with other members that can fill them. There are usually fees to join, but compared to a print advertisement for example, you only pay to join once and then most exchanges are ‘pay per use’.

Example for a Barter transaction:

Sale of 10 computers :

Assuming normal trade/ customer discount of 30% on MRP

Sale – 10 x Rs 35,000 (net of discount) = Rs 350,000

Less Expenses – 10 x Rs 25,000 = Rs 250,000

Profit – Rs 100,000

Sale of 10 computers at MRP

(no trade margin or customer discounts assumed)

Sale - 10 x Rs 50,000) = Rs 500,000 (Earns Barter Credits)

Less Expenses – 10 x Rs 25,000 = Rs 250,000

Profit – Rs 250,000

Co. X therefore earns barter credits worth Rs 500,000 (sale value) and purchases media space in lieu of the value earned.

Purchases – Ad space in newspapers on barter for Rs 500,000.

Pays 10% fee on Rs 500,000 to Net 4 Barter = Rs 50,000 (in cheque).


Commodity money is money whose value comes from a commodity out of which it is made. Examples of commodities that have been used as mediums of exchange include gold, silver, copper, salt, peppercorns, large stones, decorated belts, shells, alcohol, cigarettes, and candy.

Commodity money is to be distinguished from representative money which is a certificate or token which can be exchanged for the underlying commodity. A key feature of commodity money is that the value is directly perceived by the users of this money, who recognize the utility or beauty of the tokens as they would recognize the goods themselves. That is, the effect of holding a token for a barrel of oil must be the same economically as actually having the barrel at hand. This thinking guides the modern commodity markets, although they use a sophisticated range of financial instruments that are more than one-to-one representations of units of a given type of commodity.Since payment by commodity generally provides a useful good, commodity money is similar to barter, but is distinguishable from it in having a single recognized unit of exchange

Historical Significance

Commodity money often comes into being in situations where other forms of money are not available or not trusted. Various commodities were used in pre-Revolutionary America including wampum, maize, iron nails, beaver pelts, and tobacco. In post-war Germany, cigarettes became used as a form of commodity money in some areas. Cigarettes are still used as a form of commodity money in U.S. Historically, gold was by far the most widely recognized commodity out of which to make money: gold was compact, did not corrode, had decorative and functional utility as finely strung wire, thin foil leaf, and other ornaments, could always be traded for other more functional metals and goods.


In situations where the commodity is metal, typically gold or silver, a government mint will often coin money by placing a mark on the metal that serves as a guarantee of the weight and purity of the metal. In doing so, the government will often impose a fee which is known as seigniorage. The role of a mint and of coin is different between commodity money and fiat money. In situations where there is commodity money, the coin retains its value if it is melted and physically altered, while in fiat money it does not.


Shell money is a medium of exchange, the most widely distributed type of ancient currency that was once common. It consisted of whole sea shells or pieces of them which were sometimes worked into beads or artificially shaped. Shells are particularly useful as money because they may be strung in long strips of proportionate value or they may be used to provide a single unit value in exchange. Shells ultimately derived their value from their use as jewelry and in rituals.

Relative scarcity of the type of shell used or the way the shell is fashioned often determines its value. Shell money was not restricted to one quarter of the globe, but in some form or other appears to have been found on every continent: America, Asia, Africa and Australia. At about 1200 B.C. in China, cowry shells became the first medium of exchange, or money. The cowry has served as money throughout history even to the middle of this century. Cowrie shells have been the most common shell media and are probably the oldest in usage for exchange. Wampum , used in North America, was usually fashioned from thick-shelled clams; dentalia, or tooth shells, were popular with the coastal Native Americans of W North America. Mother-of-pearl and tortoiseshell are said to have been used for trade in ancient China. Oceanic peoples in particular use a variety of shells in trade.

North American shell money

The shell used by the Native American tribes of Alaska and California was Dentalium pretiosum, a species of long narrow marine shelled mollusk, a tusk shell or scaphopod. The tusk shell is naturally open at both ends, and can easily be strung on a thread. This shell money was valued by its length rather than the exact number of shells; the "ligua", the highest denomination in their currency, was a length of about 6 feet. Farther south on the shore of California the Indians used the marine bivalve Saxidomus gracilis, while in the islands close to the shore another bivalve was in common use. The Algonquin tribes of the east coast of North America used elaborate belts of beads called wampum which was cut from the purple part of the shell of the marine bivalve Mercenaria mercenaria, more commonly known as the hard clam, quahog, or when young, the littleneck clam.

Indian Ocean and Pacific shell money

The shell most commonly used worldwide as currency has always been the Cypraea moneta, or money cowry. It is most abundant in the Indian Ocean, and was collected in the Maldive Islands, in Sri Lanka, along the Malabar coast, in Borneo and on other East Indian islands, and in various parts of the African coast from Ras Hafun to Mozambique. It was formerly in familiar use in Bengal, where, though it required 3840 to make a rupee, the annual importation was valued at about 30,000.

African shell money

In western Africa, shell money was usual tender up until the middle of the 19th century. Before the abolition of the slave trade there were large shipments of cowry shells to some of the English ports for reshipment to the slave coast. It was also common in West Central Africa as the currency of the Kingdom of Kongo called locally nzimbu. As the value of the cowry was much greater in West Africa than in the regions from which the supply was obtained, the trade was extremely lucrative. In some cases the gains are said to have been 500%. The use of the cowry currency gradually spread inland in Africa. By about 1850 Heinrich Barth found it fairly widespread in Kano, Kuka, Gando, and even Timbuktu. Barth relates that in Muniyoma, one of the ancient divisions of Bornu, the king's revenue was estimated at 30,000,000 shells with every adult male being required to pay annually 1000 shells for himself, 1000 for every pack-ox, and 2000 for every slave in his possession.

In the countries on the coast the shells were fastened together in strings of 40 or 100 each, so that fifty or twenty strings represented a dollar; but in the interior they were laboriously counted one by one, or, if the trader were expert, five by five. The districts mentioned above received their supply of kurdi, as they were called, from the west coast; but the regions to the north of Unyamwezi, where they were in use under the name of simbi, were dependent on Muslem traders from Zanzibar. The shells were used in the remoter parts of Africa until the early 20th century, but gave way to ordinary currency. The shell of the land snail, Achatina monetaria, cut into circles with an open center was also used as coin in Benguella, Portuguese West Africa. In parts of Asia Cyproeci annulus, the ring cowry, so-called from the bright orange-colored ring on the back or upper side of the shell, was commonly used. Many specimens were found by Sir Henry Layard in his excavations at Nimrud in 1845-1851.

Australian and Asian shell money

In northern Australia, different shells were used by different tribes, one tribe's shell often being quite worthless in the eyes of another tribe. In the islands north of New Guinea the shells were broken into flakes. Holes are bored through these flakes, which are then valued by length, as in the case of the American tusk shell, the measuring, however, being done between the nipples of the breasts instead of by the finger joints. Two shells are used by these Pacific islanders, one a cowry found on the New Guinea coast, and the other the common pearl shell, broken into flakes.

As late as 1882 local trade in the Solomon Islands was carried on by means of a coinage of shell beads, small shells laboriously ground down to the required size by the women. No more than were actually needed were made, and as the process was difficult, the value of the coinage was satisfactorily maintained. The custom of breaking or flaking shells was common among some of the American Indian tribes, but the shells so manipulated were of the ponderous Pachyderma crassatelloides species, while in the South Pacific Islands the Oliva carneola was used. In China, cowries were so important that all characters relating to money contain the character for cowry.

Solomon Islands and New Britain

Shell money and other traditional valuables are still required for ceremonial payments across the South Pacific. Strings of shell disks or beads (called heishe in the U.S.) are often valued by the fathom which equals 6 feet or slightly less than 2 metres. Strands are also accepted as currency outside of ceremonies in the Solomon Islands, and in New Ireland, New Britain and other parts of PNG. In these areas, shell money has held its value where government currencies have not.

One fathom of shell money purchased in Busu Village, Malaita, Solomon Islands in 1999 for 50 Solomon Island dollars (about $11 USDollars). The shell disks were heated to deepen their color and increase their value.

SolomonIslands Shellmoney


The warehouse receipt is most commonly associated with transactions that involve futures or commodities. Essentially, warehouse receipts are proof of the existence of the goods in question. The receipt will usually include important details about the nature of the commodity that help to confirm the presentation made by the seller, and will include information about the physical location of the acquired goods.

The typical warehouse receipt will include specifics about the commodities that are of especial relevance to the transaction. First, the receipt confirms the number of units that are involved in the business deal. Often, the detail will also include the unit price as well as the extended price for the entire purchase. This helps the investor to have clear documentation of the basics of the purchase.

Along with the information about the cost of the acquired commodity, the warehouse receipt will often include some information about the quality of the acquired goods. The exact amount of detail about the level of quality will vary. In some instances, the information will include documentation of grades or classifications that are normally used with the particular type of commodity. Details about the originating location for the commodity may also appear in the text of the warehouse receipt.

A warehouse receipt functions as one of the instruments involved with the transfer of ownership in both trades involving commodities as well as futures. The receipt can be constructed as a negotiable document, which can be made to the order of a company or the bearer of the document. A non-negotiable warehouse receipt will only allow delivery to the person or business that is named as the owner in the document. Typically, a warehouse receipt will accompany other pertinent documents relating to the sale of the commodities, with copies placed in the possession of the new owner, the warehouse used for storage, and the seller.

Warehouse receipts are the currency of agriculture. With a receipt in hand, farmers may negotiate the sale of their crop and transfer title with ease and confidence. Likewise, purchasers of the commodity have the one document they need to guarantee that the facility storing the agricultural commodity must turn it over to them.

The United States Warehouse Act (USWA), enacted in 1916, established a federal licensing system for warehouses to provide for, among other things, financial security, recordkeeping, protection and other operational items.

A receipt used in futures markets to guarantee the quantity and quality of a particular commodity being stored within an approved facility. Rather than delivering the actual commodity, warehouse receipts are used to settle expiring futures contracts. Also referred to as a vault receipt, they are most often used when settling futures contracts that have precious metals as their underlying commodities.

A classification of metals that are considered to be rare and/or have a high economic value. The higher relative values of these metals are driven by various factors including their rarity, uses in industrial processes and use as an investment commodity. Precious metals include, but are not limited to: gold, silver, platinum, iridium, rhodium and palladium.

Investing in precious metals can be done either by purchasing the physical asset, or by purchasing futures contracts for the particular metal. Another way to gain investment exposure to precious metals is to purchase shares in publicly traded companies that deal in the exploration or production of precious metals, such as a gold mining company.

Banking Dictionary: Warehouse Receipt

Document giving proof of ownership of goods held in inventory, for example, unfinished goods temporarily stored in a field warehouse by a manufacturer. The receipt is a Title document for its holder and may be either negotiable or nonnegotiable. A negotiable warehouse receipt is deliverable to the bearer or to another party named; a nonnegotiable receipt specifies to whom the stored goods are deliverable. Most warehouse receipts are issued in negotiable form, making them eligible as collateral for Working Capital loans from a bank.


History of Bank Notes

Paper money originated in two forms: drafts, which are receipts for value held on account, and "bills", which were issued with a promise to convert at a later date.

Money is based on the coming to pre-eminence of some commodity as payment. The oldest monetary basis was for agricultural capital: cattle and grain. In Ancient Mesopotamia, drafts were issued against stored grain as a unit of account. A "drachma" was a weight of grain. Japan's feudal system was based on rice per year – koku. At the same time, legal codes enforced the payment for injury in a standardized form, usually in precious metals.

The development of money then comes from the role of agricultural capital and precious metals having a privileged place in the economy. Such drafts were used for giro systems of banking as early as Ptolemaic Egypt in the first century BC.The perception of banknotes as money has evolved over time. Originally, money was based on precious metals. Banknotes were seen as essentially an I.O.U. or promissory note: a promise to pay someone money, but not actual money. As banknotes became more widely used, they became more accepted as equivalent to precious metal. With the gradual removal of precious metals from the monetary system, banknotes evolved to represent fiat money.

Generally, a central bank or treasury is solely responsible within a state or currency union for the issue of banknotes. Historically, many different banks or institutions may have issued banknotes in a country. By virtue of the complex constitutional setup in the United Kingdom, two of the union's four constituent countries (Scotland and Northern Ireland) continue to print their own banknotes for domestic circulation, with the UK's central bank (the Bank of England) printing notes which are legal tender in England and Wales, and are also usable as money in the rest of the UK.

First Banknotes In The World

Jiaozi (Song Dynasty), the world's earliest paper money from China.

The use of paper money as a circulating medium is intimately related to shortages of metal for coins. In ancient China coins were circular with a rectangular hole in the middle. Several coins could be strung together on a rope. Merchants in China, if they became rich enough, found that their strings of coins were too heavy to carry around easily. To solve this problem, coins were often left with a trustworthy person, and the merchant was given a slip of paper recording how much money he had with that person. If he showed the paper to that person he could regain his money.

Eventually from this paper money "jiaozi" originated. In the 600s there were local issues of paper currency in China and by 960 the Song Dynasty, short of copper for striking coins, issued the first generally circulating notes. A note is a promise to redeem later for some other object of value, usually specie. The issue of credit notes is often for a limited duration, and at some discount to the promised amount later. The jiaozi nevertheless did not replace coins in Song Dynasty; the paper money was used alongside the coins. The successive Yuan Dynasty was the first dynasty in China to use paper currency completely as the circulating medium. The original notes in Yuan Dynasty were restricted in area and duration as in Song Dynasty, but in the later course of the dynasty, facing massive shortages of specie to fund their ruling in China, began printing paper money without restrictions on duration. By 1455, in an effort to rein in economic expansion and end hyperinflation, the new Ming Dynasty ended paper money, and closed much of Chinese trade.

Earliest Paper Money
Banknotes in Europe

In Europe the first paper money consisted of paper 'coins' issued in Protestant Leyden (today, Leiden) in the Netherlands during the Spanish siege of 1574. Over 5000 of the estimated 14,000 residents of Leyden died, mostly due to starvation. Even leather (often used to create emergency currency) was boiled and used to feed the people. So to create currency, the residents took covers and paper from hymnals and church missives and created paper planchets, which were struck using the same dies that were previously used to mint coins.The first proper European banknotes were issued by Stockholms Banco, a predecessor of the Bank of Sweden, in 1660, although the bank ran out of coins to redeem its notes in 1664 and ceased operating in that year.

Banknotes in the Americas
AMerican Bank Notes

Banknotes are often kept in wallets. Emergency paper money hand-written on playing cards was used in French Canada from 1685.

In the early 1690s, the Massachusetts Bay Colony was the first of the colonies to issue the permanently circulating banknotes. The use of fixed denominations and printed banknotes came into use in the 18th century.

In the United States, public acceptance of banknotes in replacement of precious metals was hastened in part by Executive Order 6102. This order carried the threat of a maximum $10,000 fine and a maximum of ten years in prison for anyone who kept more than $100 of gold in preference to banknotes

Features Shown On the Banknote:

a. Watermark

A watermark is put onto a banknote's paper prior to the printing process as a security device which deters counterfeiters. When held up to the light, a watermark is visible as either a gray image on a white background or vice versa. Whenever you see a blank spot on a bill, it is usually a watermark.

b. Portrait

Many banknotes have a portrait of a dignitary on them. Often, the watermark is a duplicate of the portrait.

c. Serial Number

The serial number is perhaps one of the oldest security devices on a banknote. Using unique serial numbers on each bill, governments are able to closely track legitimate bills.

d. Issuing Authority

In this case it is "Banco Central del Uruguay" or The Central Bank of Uruguay. This is the agency responsible for issuing currency in that country. At certain points in history there may have been many more than one issuing authority within the same country.

e. Denomination

The denomination shows how much of what type of currency the banknote is. In this example it is "Mil Pesos" or 1,000 pesos.

f. Background

The intricate colorful backgrounds on many notes make them more difficult for would be counterfeiters to duplicate.

g. Authorized Signatories

These signatures represent a stamp of approval making the currency official. Long ago, most banknotes were printed but did not become legal tender until each one was signed individually by the authorized signatories. Usually at least one of the signatures is the Treasurer of the issuing authority.

Other features not shown on this banknote:

Issue Date

Most banknotes have an issue date on the front which often includes not only the year of issue but also the month and day.

The three samples shown below all exhibit the day, month and year in their dates. They are from Italy, France and Germany (from left to right).

Italian Bank Notes
French bank Notes
German Bank Notes

Metallic Thread

Some sophisticated banknotes include a metallic thread woven into the paper of the money itself. Some of the newer U.S. issues include a metallic strip embossed with the denomination of the bill.

The metallic thread is seen in the sample at the left as a shadowy vertical line in the bank note from France. But in the note at the right from England, the metallic strip is not embedded completely into the paper. At intervals it shows through as small shiny metal spots that look a bit like aluminum foil.

Merallic Thread1
Merallic Thread2

Colorful Threads

A great number of modern banknotes include tiny little colorful threads manufactured into the paper. These are much smaller than the metallic thread and are usually lightly dispersed throughout the paper. However, sometimes a note will have a dense band of these colorful threads running through it which creates an interesting effect.

Both of the examples below are from Germany. The top contains blue threads only and does not contain any threads at all on the right 1/3 of the note. The bottom example contains both blue and red threads only in the right 1/4 of the note.

Colourful Threads 1
Colourful Threads 2

Printer's Name

Oftentimes the printing company's name will appear on a banknote in very small letters (sometimes abbreviated also) usually in the white frame area at the bottom of the bill.

Printer's Name1
Printer's Name2
Printer's Name3


It sometimes becomes neccessary for an issuing authority to 'revalue' a country's money in order to combat extreme inflation. As a temporary measure while new notes are being printed and distributed, the existing notes are sometimes overprinted or stamped with a new value.

At the left is a 10,000 Bolivian Peso note which has been stamped with a new denomination of 1 Bolivian Centavo. At the right is a Brazilian 1,000 Cruzado note which has been overprinted with it's adjusted value of 1 New Cruzado.


Bar Codes

This new note from the Netherlands includes a bar coded serial number on the reverse side. This facilitates high speed tracking of individual bills and acts as a deterrent to would be counterfeiters.


Color Shifting Ink

The 1996 series of U.S. banknotes feature a durable color shifting ink in one set of numbers which changes color from metallic green to black depending on the angle you view it from. I believe this is the first set of banknotes ($20, $50, $100) to feature color shifting ink because previous types of ink were not durable enough to be used on banknotes


All U.S. banknotes feature microprint which is printing so small that it can barely be distinguished with the naked eye. As such, most people don't ever realize it is there. Upon inspection of a crisp uncirculated note with a magnifying glass, you will be able to see incredibly small printing designed to foil counterfeiters. There is currently no commonly available machinery or equipment (including computer scanners/printers or copying machines) capable of reproducing microprinting.

UltraViolet Ink

Some banknotes have areas printed with UV ink. These areas are usually overprints over an existing patterned area. UV ink is invisible unless viewed under special UV light bulbs. Many collectors don't know that this exists on banknotes. There is a very good site with descriptions and photos of these examples at Glen's World Banknote Page (Ultraviolet Ink). I haven't seen this information anywhere else, it's definitely a 'must see'.


Another 'must see' item on Glen's World Banknote Page (Holograms) is his photos and discussion of the use and creation of holograms on banknotes.

Foreign currency pictures ( banknotes)

World coin pictures

A banknote (often known as a bill or simply a note) is a kind of negotiable instrument, a promissory note made by a bank payable to the bearer on demand, used as money, and in many jurisdictions is legal tender. Along with coins, banknotes make up the cash or bearer forms of all modern money. With the exception of non-circulating high-value or precious metal commemorative issues, coins are generally used for lower valued monetary units, while banknotes are used for higher values.

Materials used for banknotes

Paper banknotes

Most banknotes are made of dense 80 to 90 grams per square meter cotton paper (see also paper), sometimes mixed with linen, abaca, or other textile fibres. Generally, the paper used is different from ordinary paper: it is much more resilient, resists wear and tear, and also does not contain the usual agents that make ordinary paper glow slightly under ultraviolet light.

Early Chinese banknotes were printed on paper made of mulberry bark and this fibre is used in Japanese banknote paper today.Unlike most printing and writing paper, banknote paper is impregnated with polyvinyl alcohol or gelatin to give it extra strength.

Most banknotes are made using the mould made process in which a watermark and thread is incorporated during the paper forming process.

The thread is a simple looking security component found in most banknotes. It is however often rather complex in construction comprising fluorescent, magnetic, metallic and micro print elements. By combining it with watermarking technology the thread can be made to surface periodically on one side only. This is known as windowed thread and further increases the counterfeit resistance of the banknote paper. This process was invented by Portals, part of the De La Rue group in the UK.

Recently this company has introduced many new features to the banknote world including Cornerstone, Platinum and Optiks, all registered trade marks of De La Rue. Cornerstone uses watermarking to reduce the number of corner folds by strengthening this part of the note. Platinum is a special coating to reduce the dirt picked up by banknotes. Optiks is a new thread based security feature that creates a plastic window in the paper which is very hard to copy.

Durable banknote papers

Banknote paper with enhanced durability is a recent development, designed to meet the growing need for popular low-denomination banknotes to withstand extreme wear.

Improved Protection Against Dirt

Manufacturers of banknote paper were quick to recognize the problems associated with dirt and developed a special paper with a thin layer of varnish on the surface to repel soiling. This layer is applied directly to the substrate. The thickness and structure of the paper remain unchanged, thereby preserving the natural feel. The so-called Durable Banknote Papers, which are available in the global banknote market under brand names, such as LongLife, Platinum, Marathon Coated, Diamone, and Flesure, protect banknotes from soiling and environmental incluences, making it possible for them to remain in circulation for longer.

Increased mechanical stability

With new products, such as Synthec and Diamone Composite, banknote manufacturers have gone a step further and responded to the growing demand for higher mechanical stability of the paper—because the longer a banknote stays in circulation, the limper it becomes and the more easily it tears. Synthec substrate, for example, consists of 80 percent cotton fiber and 20 percent synthetic fiber, with the latter being longer and more flexible than the former. The synthetic fibers constitute a dense network within the cotton fiber structure, supporting the banknote like a kind of corset and increasing its mechanical stability. This practically doubles the useful life of the product. Synthec is much less sensitive to climate fluctuations than standard banknote paper. The synthetic fibers are incorporated in the banknote substrate at the sheet formation stage. This has the advantage that all established security features—such as three dimensional watermarks, fluorescent fibers, security threads, or the innovative new varifeye® see-through window—can be integrated into the new Synthec substrate, just as they would be with the standard cotton substrate. Optically variable effect inks and foil elements, such as holograms, can be applied to this substrate in the same way as with traditional banknote paper.

Public confidence in the established security features, built up over decades, remains intact. To ensure that the banknotes are also protected against dirt, they are given a standard coating of varnish. By the end of 2007, Synthec banknotes will be circulating in three countries, including an African country with different climate zones that has chosen Synthec as a substrate for its lowest-denomination note. In the south of the country conditions are tropical, with a rainy season that lasts for eight months, while the north is very arid and extremely hot, with temperatures reaching 41 degrees Celsius.

Counterfeiting And Security Measures On Paper Banknotes
First kinegram banknote
The first kinegram banknote, the 1988 Austrian 5000 Schilling note (Mozart)

The ease with which paper money can be created, by both legitimate authorities and counterfeiters, has led both to a temptation in times of crisis such as war or revolution to produce paper money which was not supported by precious metal or other goods, thus leading to hyperinflation and a loss of faith in the value of paper money, e.g. the Continental Currency produced by the Continental Congress during the American Revolution, the Assignats produced during the French Revolution, the paper currency produced by the Confederate States of America and the Individual States of the Confederate States of America, the financing of the First World War by the Central Powers (by 1922 1 gold Austro-Hungarian krone of 1914 was worth 14,400 paper Kronen), the devaluation of the Yugoslav Dinar in the 1990s, etc. Banknotes may also be overprinted to reflect political changes that occur faster than new currency can be printed.In 1988, Austria produced the 5000 Schilling banknote (Mozart), which is the first foil application (Kinegram) to a paper banknote in the history of banknote printing. The application of optical features is now in common use throughout the world.Many countries' banknotes now have embedded holograms.

Polymer banknotes
First Australian polymer banknote
The first Australian polymer banknote, the 1988 $10 commemorative issue

In 1983, Costa Rica and Haiti issued the first Tyvek and the Isle of Man issued the first Bradvek polymer (or plastic) banknotes; these were printed by the American Banknote Company and developed by DuPont. In 1988, after significant research and development by the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Reserve Bank of Australia, Australia produced the first polymer banknote made from biaxially-oriented polypropylene (plastic), and in 1996 became the first country to have a full set of circulating polymer banknotes of all denominations. Since then, other countries to adopt circulating polymer banknotes include Bangladesh, Brazil, Brunei, Chile, Indonesia, Malaysia, Mexico, Nepal, New Zealand, Papua and New Guinea, Romania, Singapore, the Solomon Islands, Sri Lanka, Thailand, Viet Nam, Western Samoa and Zambia, with other countries issuing commemorative polymer notes, including China, Kuwait, the Northern Bank of Northern Ireland, Taiwan. Other countries indicating plans to issue polymer banknotes include Nigeria. In 2005, Bulgaria issued the world's first hybrid paper-polymer banknote.

Polymer banknotes were developed to improve durability and prevent counterfeiting through incorporated security features, such as optically variable devices that are extremely difficult to reproduce.The uptake of polymer banknotes has however been comparatively slow with an estimated 1.5% of the Worlds banknotes now using this material. Problems with print durability and the very bulky nature of creased polymer notes rank high amongst the problems limiting polymer uptake. Some countries such as Thailand have reverted to paper after testing polymer notes in circulation.

Other Materials

Over the years, a number of materials other than paper have been used to print banknotes. This includes various textiles, including silk, and materials such as leather.

Silk and other fibers have been commonly used in the manufacture of various banknote papers, intended to provide both additional durability and security. Crane and Company patented banknote paper with embedded silk threads in 1844 and has supplied paper to the United States Treasury since 1879. Banknotes printed on pure silk "paper" include "emergency money" (Notgeld) issues from a number of German towns in 1923 during a period of fiscal crisis and hyperinflation. Most notoriously, Bielefeld produced a number of silk, leather, velvet, linen and wood issues, and although these issues were produced primarily for collectors, rather than for circulation, they are in demand by collectors. Banknotes printed on cloth include a number of Communist Revolutionary issues in China from areas such as Xinjiang, or Sinkiang, in the United Islamic Republic of East Turkestan in 1933. Emergency money was also printed in 1902 on khaki shirt fabric during the Boer War.

Leather banknotes (or coins) were issued in a number of sieges, as well as in other times of emergency. During the Russian administration of Alaska, banknotes were printed on sealskin. A number of 19th century issues are known in Germanic and Baltic states, including the towns of Dorpat, Pernau, Reval, Werro and Woisek. In addition to the Bielefeld issues, other German leather Notgeld from 1923 is known from Borna, Osterwieck, Paderborn and Pößneck.Other issues from 1923 were printed on wood, which was also used in Canada in 1763-1764 during Pontiac's War, and by the Hudson's Bay Company. In 1848, in Bohemia, wooden checkerboard pieces were used as money.

Even playing cards were used for currency in France in the early 19th Century, and in French Canada from 1685 until 1757, in the Isle of Man in the beginning of the 19th Century, and again in Germany after World War I.


Representative money is money that consists of token coins, other physical tokens such as certificates, and even non-physical "digital certificates" (authenticated digital transactions) that can be reliably exchanged for a fixed quantity of a commodity such as gold, silver or potentially water, oil or food. The system of commodity money in many instances evolved into a system of representative money. In this system, the material that constitutes the money itself had very little intrinsic value, but none the less such money achieves significant market value through being scarce as an artefact. Paper currency and non-precious coinage was backed by a government or bank's promise to redeem it for a given weight of precious metal, such as silver. This is the origin of the term "British Pound" for instance; it was a unit of money backed by a Tower pound of sterling silver - hence the currency Pound Sterling. For much of the nineteenth and twentieth centuries, many currencies were based on representative money through the use of the gold standard.

Gold Dollar Bill


In the 12th Century, the English monarchy introduced an early version of the bill of exchange in the form of a notched piece of wood known as a tally stick. Tallies originally came into use at a time when paper was rare and costly, but their use persisted until the early 19th Century, even after paper forms of money had become prevalent.


In 1500, North American Indians engaged in potlach, a term that describes the exchange of gifts at banquets, dances, and various rituals. Since the trading of gifts was so important in figuring the leaders’ community status, potlach went out of control as the gifts became more extravagant in an effort to surpass others' gifts.


In 1535, though likely well before this earliest recorded date, strings of beads made from clam shells, called wampum, are used by North American Indians as money. Wampum means white, the color of the clam shells and the beads.


During the English Civil War, 1642-1651, the goldsmith's safes were secure places for the deposit of jewels, bullion and coins. Instructions to goldsmiths to pay money to another customer subsequently developed into the cheque (or check in American spelling). Similarly goldsmiths' receipts were used not only for withdrawing deposits but also as evidence of ability to pay and by about 1660 these had developed into the banknote.


In England's American colonies a chronic shortage of official coins led to various substitutes being used as money, including, in Viriginia, tobacco, leading to the development of paper money by a different route. Tobacco leaves have drawbacks as currency and consequently certificates attesting to the quality and quantity of tobacco deposited in public warehouses came to be used as money and in 1727 were made legal tender.


The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold. Under the gold standard, currency issuers guarantee to redeem notes, upon demand, in that amount of gold. Governments that employ such a fixed unit of account, which will redeem their notes to other governments in gold, share a fixed-currency relationship. The gold standard is not currently used by any government or central bank, having been replaced completely by fiat currency. However, private currency, backed by gold, is in use.

Gold was a common form of representative money due to its rarity, durability, divisibility, fungibility, and ease of identification, often in conjunction with silver. Silver was typically the main circulating medium, with gold as the metal of monetary reserve.


Early coinage

Early Coinage
Gold coin of Alexander the Great, ca. 330 BC

The first metal used as a currency was silver more than 4,000 years ago, when silver ingots were used in trade. Gold coins first were used from 600 b.c. However, long before this time, gold, as per silver, was used as a store of wealth and the basis for trade contracts in Akkadia, and later in Egypt. During the heyday of the Athenian empire, the city's silver tetradrachm was the first coin to achieve "international standard" status in Mediterranean trade. Silver remained the most common monetary metal used in ordinary transactions until the 20th century.

Aureus Silver Coins
Aureus minted in 193 by Septimius Severus

The Persian Empire collected taxes in gold and issued its own gold coin, known in the West as the δαρεικός, dareikos in Greek, or daricus in Latin. When Persia was conquered by Alexander the Great, this gold became the basis for the gold coinage of Alexander's empire and those of his Diadochi. The vast gold hoard of the Persian kings was put into monetary circulation, triggering the first known "worldwide" inflation event

Solidus of Justinian II,
Solidus of Justinian II, ca. 705

The Roman Empire minted two important gold coins: the aureus, which was ~7 grams of gold alloyed with silver, and the smaller solidus, which weighed 4.4 grams, of which 4.2 was gold. These values applied only to the early Empire. Later Roman and Byzantine coins were frequently debased by being alloyed with other metals of much lower value.

The dinar and dirham were gold and silver coins, respectively, originally minted by the Persians. The Caliphates in the Islamic world adopted these coins, starting with Caliph Abd al-Malik (685–705).

Sequin (Venetian ducat)
Sequin (Venetian ducat), 1382

In 1284 the Republic of Venice coined the ducat, its first solid gold coin. Other coins, the florin, noble, grosh, złoty, and guinea, were also introduced at this time by other European states to facilitate growing trade. Beginning with the conquest of the Aztec and Inca Empires, Spain had access to stocks of new gold for coinage in addition to silver. The wide availability of milled and cob gold coins made it possible for the West Indies to make gold the only legal tender in 1704. The circulation of Spanish coins was later to create the unit of account for the United States, the "dollar", based on the Spanish silver real, and Philadelphia's currency market was to trade in Spanish colonial coins.

Types of Gold Standards

In theory, "domestic" gold standards -- those that do not depend on interaction with other countries -- are of two types: "pure coin" standard and "mixed" (meaning coin and paper, but also called simply "coin") standard. The two systems share several properties. (1) There is a well-defined and fixed gold content of the domestic monetary unit. For example, the dollar is defined as a specified weight of pure gold. (2) Gold coin circulates as money with unlimited legal-tender power (meaning it is a compulsorily acceptable means of payment of any amount in any transaction or obligation). (3) Privately owned bullion (gold in mass, foreign coin considered as mass, or gold in the form of bars) is convertible into gold coin in unlimited amounts at the government mint or at the central bank, and at the "mint price" (of gold, the inverse of the gold content of the monetary unit). (4) Private parties have no restriction on their holding or use of gold (except possibly that privately created coined money may be prohibited); in particular, they may melt coin into bullion. The effect is as if coin were sold to the monetary authority (central bank or Treasury acting as a central bank) for bullion. It would make sense for the authority to sell gold bars directly for coin, even though not legally required, thus saving the cost of coining.

Under a pure coin standard, gold is the only money. Under a mixed standard, there are also paper currency (notes) -- issued by the government, central bank, or commercial banks -- and demand-deposit liabilities of banks. Government or central-bank notes (and central-bank deposit liabilities) are directly convertible into gold coin at the fixed established price on demand. Commercial-bank notes and demand deposits might be converted not directly into gold but rather into gold-convertible government or central-bank currency. This indirect convertibility of commercial-bank liabilities would apply certainly if the government or central- bank currency were legal tender but also generally even if it were not. As legal tender, gold coin is always exchangeable for paper currency or deposits at the mint price, and usually the monetary authority would provide gold bars for its coin.


Beyond the difficulty in transporting, storing, and preventing the debasement of gold, one of the main disadvantages of a gold standard is that it would artificially increase gold's value, due to the additional demand as a monetary medium, and thus increase the cost of items and industrial processes in which it is used.

In particular, gold-backed currencies prevent tailoring the money supply to the economy's demand for money, and are subject to speculative attacks when the government's financial position looks weak; attacks which often require punitive economic measures to counter. Such measures exacerbated the Great.

Gold as a reserve today
Gold Ingots

Gold ingots like these, from the Bank of Sweden, still form an important currency reserve and store of private wealth.

During the 1990s Russia liquidated much of the former USSR's gold reserves, while several other nations accumulated gold in preparation for the Economic and Monetary Union. The Swiss Franc left a full gold-convertible backing. However, gold reserves are held in significant quantity by many nations as a means of defending their currency, and hedging against the U.S. Dollar, which forms the bulk of liquid currency reserves. Weakness in the U.S. Dollar tends to be offset by strengthening of gold prices. Gold remains a principal financial asset of almost all central banks alongside foreign currencies and government bonds. It is also held by central banks as a way of hedging against loans to their own governments as an "internal reserve". Approximately 25% of all above-ground gold is held in reserves by central banks.

Both gold coins and gold bars are widely traded in deeply liquid markets, and therefore still serve as a private store of wealth. Some privately issued currencies, such as digital gold currency, are backed by gold reserves.

In 1999, to protect the value of gold as a reserve, European Central Bankers signed the "Washington Agreement," which stated that they would not allow gold leasing for speculative purposes, nor would they "enter the market as sellers" except for sales that had already been agreed upon.


Digital gold currency (or DGC) is a form of electronic money denominated in gold weight. The typical unit of account for such currency is the gold gram or the troy ounce, although other units such as the gold dinar are sometimes used. DGCs are backed by gold through unallocated or allocated gold storage. Digital gold currencies are issued by a number of companies, each of which provides a system that enables users to pay each other in units that hold the same value as gold bullion. These competing providers issue independent currency, which normally carries the same name as their company. In terms of the most popular providers, e-gold has the greatest number of users and GoldMoney holds the greatest quantity of bullion.


At about 500 B.C., pieces of silver were the earliest coins. Eventually in time they took the appearance of today and were imprinted with numerous gods and emperors to mark their value. These coins were first shown in Lydia, or Turkey, during this time, but the methods were used over and over again, and further improved upon by the Greek, Persian, Macedonian, and Roman empires. Not like Chinese coins, which relied on base metals, these new coins were composed from scarce metals such as bronze, gold, and silver, which had a lot of intrinsic value.


In 118 B.C., banknotes in the form of leather money were used in China. One-foot square pieces of white deerskin edged in vivid colors were exchanged for goods. This is believed to be the beginning of a kind of paper money.


During the ninth century A.D., the Danes in Ireland had an expression "To pay through the nose." It comes from the practice of cutting the noses of those who were careless in paying the Danish poll tax.


Manillas were ornamental metallic objects worn as jewelry in west Africa and used as money as recently as 1949. They were an ostentatious form of ornamentation, their value in that role being a prime reason for their acceptability as money.


In Fijian society gifts of whales teeth were (and in certain cases still are) a significant feature of certain ceremonies. Whales teeth were "tambua" (from which our word "taboo" comes) meaning that they had religious significance, as did the fei stones of Yap which were still being used as money as recently as the mid 1960s.


An account balance which can be drawn upon on demand, i.e. without prior notice. An account from which deposited funds can be withdrawn at any time without any notice to the depository institution. This account allows you to “demand” your money at any time, unlike a term deposit, which cannot be accessed for a predetermined period (the loan's term). Most checking and savings accounts are demand deposits, accessible by the account holder at any time.

Transactional Account or Demand Deposit Account (DDA) or Current Account is primarily meant for businessmen, firms, companies, public enterprises etc. that have numerous daily banking transactions. Current Accounts are meant neither for the purpose of earning interest nor for the purpose of savings but only for convenience of the business, hence they are non-interest bearing accounts. In a Current Account, a customer can deposit any amount of money any number of times and permit unlimited number of withdrawals, subject to availability of funds.

Internet banking

Internet or Online banking describes the use of a bank's secure website to view balances and statements, perform transactions and payments, and various other facilities. This can be very useful, especially for banking outside bank hours and banking from anywhere where internet access is available. Since the internet revolution most retail banking institutions offer access to current accounts via online banking.

Telephone banking

Telephone banking is the term applied to specific provision of banking services over the telephone. In many cases such calls are to a call centre or automated service, although some institutions continue to answer such calls in their branches. Often call centre opening times are considerably longer than branches, and some firms provide these services on a 24 hour basis.

Mail banking

Stores and merchants providing debit card access


A letter of credit is a document typically issued by a bank or financial institution, which authorizes the recipient of the letter (the "customer" of the bank) to draw amounts of money up to a specified total, consistent with any terms and conditions set forth in the letter. This usually occurs where the bank's customer seeks to assure a seller (the "beneficiary") that it will receive payment for any goods it sells to the customer.

For example, the bank might extend the letter of credit conditioned upon the beneficiary's providing documentation that the goods purchased with the line of credit have been shipped to the customer. The customer may use the letter of credit to assure the beneficiary that, if it satisfies the conditions set forth in the letter, it will be paid for any goods it sells and ships to the customer.

In simple terms, a letter of credit could be said to document a bank customer's line of credit, and any terms associated with its use of that line of credit. Letters of credit are most commonly used in association with long-distance and international commercial transactions.

Confirmed Letter of Credit

A letter of credit, issued by a foreign bank, which has been verified and guaranteed by a domestic bank in the event of default by the foreign bank or buyer. Typically, this form of letter of credit will be sought when a domestic exporter seeks assurance of payment from a foreign importer.

Commercial Letter of Credit

A commercial letter of credit assures the seller that the bank will provide payment for any goods or merchandise shipped to the bank's customer, assuming the seller provides any required documentation of the transaction and its shipment of the purchased goods.

Irrevocable Letter of Credit

An irrevocable letter of credit includes a guarantee by the issuing bank that if all of the terms and conditions set forth in the letter are satisfied by the beneficiary, the letter of credit will be honored.

Revocable Letter of Credit

An revocable letter of credit may be cancelled or modified after its date of issue, by the issuing bank.

Standby Letter of Credit

In the event that the bank's customer defaults on a payment to the beneficiary, and the beneficiary documents proof of its loss consistent with any terms set forth in the letter, a standby letter of credit may be used by the beneficiary to secure payment from the issuing bank.

The use of the letters of credit as a tool to reduce risk has grown substantially over the past decade. Letters of credit accomplish their purpose by substituting the credit of the bank for that of the customer, for the purpose of facilitating trade.

The credit professional should be familiar with two types of letters of credit: commercial and standby. Commercial letters of credit are used primarily to facilitate foreign trade. The commercial letter of credit is the primary payment mechanism for a transaction.

The standby letter of credit serves a different function. The standby letter of credit serves as a secondary payment mechanism.

The bank will issue the credit on behalf of a customer to provide assurances of his ability to perform under the terms of a contract.

Upon receipt of the letter of credit, the credit professional should review all items carefully to insure that what is expected of the seller is fully understood and that he can comply with all the terms and conditions. When compliance is in question, the buyer should be requested to amend the credit.


Credit money is any future claim against a physical or legal person that can be used for the purchase of goods and services.[1] Examples of credit money include personal I.O.U.'s, and in general any financial instrument (such as a treasury bond, savings bond, corporate bond or bank money market account certificate) which is not immediately repayable (redeemable) on demand.

Credit money is naturally used as money, and may even be the primary type of money.

Commodity money is a physical asset, not a financial claim. It is an asset to its holder and is a liability to no one. Commodity money is distinct from all other assets: It is perfectly liquid and so represents immediately available purchasing power, carries no credit risk, pays no interest, and carries no price risks.

Credit money, in contrast, is that set of financial claims making up the total liabilities of all institutions issuing transactions deposits .

In the short run, investment determines savings rather than the reverse. In the long run the ex ante real reward on financial assets must be sufficiently high to induce wealthowners to accumulate such claims voluntarily. This is the sense in which, in the long run, savings governs investment.

Macroeconomics is in a state of chronic disarray. As its mathematical sophistication has intensified, its contribution to our understanding of the real world has diminished. Increasing rigor has been accompanied by increasing mortis. Nevertheless, one can see signs of positive countercurrents, as more and more economists incrementally reject the general equilibrium price-auction paradigm. (392)


In economics, fiat currency or fiat money is money backed by an authority, usually a government, for use in exchange of goods and services or to pay a debt, e.g. tax. Unlike representative money, fiat money is not convertible to specie.

Fiat money is a form of money backed by the good credit of the issuing authority, which could be a government, bank, or other organization. The value of the money is based primarily on the faith that the money will remain relatively stable in value, continue to be accepted as a means of exchange, and will be accepted by creditors. Of particular relevance is its acceptability as payment of debts to the government, such as taxes. The term “fiat” money is also often used to distinguish it from representative money, which is pegged or fixed to a quantity or mass of precious metal. While representative money is often associated with a legal requirement that the bank of issue pay in fixed weights of a given precious metal or (in theory) fixed amount of any other precious good, fiat money generally has no inherent value. Instead, it derives its value as a medium for exchange when traded for goods or services or to pay debts.

History of Fiat currency

The first historical example of paper as fiat money was in China. Chinese governments would produce “notes of credit” which were valued as tender for limited periods of time, in order to prevent inflation. The Song Dynasty (960–1279), however, created unlimited legal tender paper money, good throughout their empire, as a way of centralizing financial control, and preventing external trade. This money, however, was only as stable as the mandarinate that enforced it, and only as safe as the rigidity and integrity of the people who created it. Since it was easy to counterfeit and communication was slow, the Song experiment with paper money collapsed, as individuals preferred doing business through bank drafts or cheques, which were backed with gold or silver.

19th century

In the 19th century, increasing international trade made monetary standards based on more than one kind of specie gradually less stable, as individuals could engage in arbitrage, buying silver where it was cheap, and then redeeming it for gold where it was overvalued. This led to the gradual adoption of the gold standard among industrialized nations. While exact dates are often hard to fix, Britain’s adoption of the gold sovereign in 1816 began its move to a gold standard, and 1844 is generally dated as the establishment of the practical gold standard in the United Kingdom. Previously, silver had been the standard against which gold was measured, because Europe had had an influx of silver from mines in Germany and silver looted from the Inca and Aztec empires and because silver had been more readily available than gold in Europe during the Middle Ages.

An early form of fiat currency was "bills of credit". Provincial governments produced notes which were fiat currency, with the promise to allow holders to pay taxes in those notes. The notes were issued to pay current obligations and could be called by levying taxes at a later time. Since the notes were denominated in the local unit of account, they were circulated from man to man in non-tax transactions. These types of notes were issued in the British colonies in America, particularly in Pennsylvania, Virginia and Massachusetts. Such money was sold at a discount of silver, which the government would then spend, and would expire at a fixed point in time later.

However, this restricted form of fiat money was prone to inflationary or deflationary cycles, as those entities which could tax in specie would do so, devaluing the notes as their expiration grew nearer.Colonial powers consciously introduced fiat currencies backed by taxes, e.g hut taxes or poll taxes, to mobilise economic resources in their new possessions, at least as a transitional arrangement.

The repeated cycle of deflationary hard money, followed by inflationary paper money continued through much of the 18th and 19th centuries. Often nations would have dual currencies, with paper trading at some discount to specie backed money. Examples include the “Continental” issued by the U.S. Congress before the constitution; paper versus gold ducats in Napoleonic era Vienna, where paper often traded at 100:1 against gold; the South Sea Bubble, which produced bank notes not backed by sufficient reserves; and the Mississippi Company scheme of John Law. The abuse of paper money led most industrialized nations to either outlaw private currency, or strictly regulate its printing, such as the United States National Bank Act of 1863. Each cycle of inflation and panic would leave citizens vowing never to allow inflation again, until the next round of severe deflation caused business failure and hurt borrowers who had to pay back in much harder money than they had borrowed, with a good example being the abolition of the “Bank of the United States” by Andrew Jackson, where he declared paper money backed by the government “unconstitutional”. The two temptations to create inflationary currencies repeatedly hobbled economic stability.

20th century

World War I set the stage for a collision between specie currency and fiat money. By this point most nations had a legalized government monopoly on bank notes and the legal tender status thereof, In theory, governments still promised to redeem notes in specie on demand. However, the costs of the war and the massive expansion afterward made governments suspend redemption in specie. Since there was no direct penalty for doing so, governments were not responsible for the economic consequences of “running the printing presses”, and the 20th century found itself facing a new economic terror: hyperinflation.

The economic crisis led to attempts to reassert currency stability by anchoring it to wholesale gold bullion rather than making it payable in specie. This money combined pure fiat currency, in that the currency was limited to central bank notes and token coins that were current only by government fiat, with a form of convertibility, via gold bullion exchange, or via exchange into US dollars which were convertible into gold bullion, under the Bretton Woods system.

Bretton Woods

After World War II, the Bretton Woods system was set up, which pegged the value of the United States dollar to 1/35th of a troy ounce (888.671 milligrams) of gold (the “gold standard”) and other currencies to the U.S. dollar. The U.S. promised to redeem dollars in gold to other central banks. Trade imbalances were corrected by gold reserve exchanges or by loans from the International Monetary Fund. This system collapsed when the United States government ended the convertibility of the US dollar for gold in 1971.


The instruments used by the corporate sector to raise funds are selected on the basis of (i) investor preference for a given instrument and (ii) the regulatory framework, where under the company has to issue the security.


Pure Instruments:

Equity shares, preference shares and debentures/bonds which were issued with their basic characteristics in tact without mixing features of other classes of instruments are called Pure instruments.

Hybrid instruments:

Hybrid instruments are those which are created by combining the features of equity with bond, preference and equity etc. Examples of hybrid instruments are:

Convertible preference shares, Cumulative convertible preference shares, non convertible debentures with equity warrants, partly convertible debentures, partly convertible debentures with Khokha (buy-back arrangement), Optionally convertible debenture, warrants convertible into debentures or shares, secured premium notes with warrants etc.

Futures and options belong to the categories of derivatives. As already discussed earlier in this chapter derivatives are contracts which derive their values from the value of one or more of other assets, known as underlying assets.

The salient features of various financial instruments available in the financial markets are given here under:

Equity shares

Equity shares have the right to share the profits of the company in the form of dividend (cash) and bonus shares. When the company is wound up, payment towards the equity share capital will be made to the respective shareholders only after payment of the claims of all the creditors and the preference share capital. Equity share holders enjoy different rights as members such as:

(a) right of pre-emption in the matter of fresh issue of capital

(b) right to apply to the court to set aside variations of their rights to their detriment

(c) rights to receive a copy of the statutory report before the holding of the statutory meeting by public companies

(d) right to apply to Central Government to call for the Annual General Meeting, if the company fails to call such a meeting

(e) right to apply to Company Law Board for calling for an extra-ordinary general meeting of the company

(f) right to receive annual accounts along with the auditors report, directors report and other information.


The investors in these instruments will be entitled to rights and bonus in the same proportion as that being offered to equity shareholders with voting rights unless otherwise specified in the Act or the rules made there under. In case the dividend on these shares unpaid for a specific period, the shareholders shall become entitled to voting rights as in the case of preference shares. They will be able to garner additional equity capital to strengthen the net worth without dilution of management control.

Types of Preference shares

1. Cumulative Preference shares ( the dividend payable every year becomes a first claim while declaring dividend by the company)

2. Non-cumulative Preference shares (if there are no profits or the profits are in adequate in any year, the shares are not entitled to any dividend for that year)

3. Convertible preference shares (Right for converting them into equity shares at the end of a specified period they quasi equity shares)

4. Redeemable Preference shares out of the profits of the company, which would otherwise be available for distribution of dividend or out of out of the proceeds of a fresh issue of shares made for the purpose.

5. Irredeemable Preference shares (If the terms of issue provide that the preference shares are not redeemable except on the happening of certain specified events which may not happen for an indefinite period such as winding up, these shares are called irredeemable preference shares)

6. Participating Preference shares (These shares can be entitled to participate in the surplus profits left, after payment of dividend to the preference and the equity shareholders to the extent provided therein)

7. Non participating Preference shares (Unless the terms of issue indicate specifically otherwise, all preference shares are to be regarded as non-participating preference shares)


Debenture includes debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not. Debenture is a document evidencing a debt or acknowledging it and any document which fulfills either of these conditions is a debenture.

1. Naked or unsecured debentures.- Not carry any charge on the assets of the company not right to attach particular property by way of security by way of security as to repayment of principal or interest

2. Secured debentures - by a mortgage of the whole or part of the assets of the company

3. Redeemable debentures on expiry of certain period

4. Perpetual debentures- on the happening of specified events which may not happen for an . indefinite period, e.g. winding up

5. Bearer debentures - payable to bearer and are transferable by mere delivery

  • Fully Convertible Debentures (FCDs):
Converted into equity shares of the company with or without premium as per the terms of the issue, on the expiry of specified period or periods.
  • Non Convertible Debentures (NCDs):
Redeemed on the expiry of the specified period or periods.
  • Partly Convertible Debentures (PCDs):
Convertible and non-convertible.
  • Zero interest fully convertible debentures:
Investors are not paid any interest till the date of conversion or up to the notifies date, after which they are converted into shares

Secured premium Notes (SPN)

These instruments are issued with detachable warrants and are redeemable after a notified period say 4 to 7 years. The warrants enable the holder to get equity shares allotted provided the secured premium notes are fully paid. During the lock in period no interest is paid. The holder has an option to sell back the SPN to the company at par value after the lock in period. If the holder exercises this option, no interest/premium is paid on redemption. In case the holder keeps it further, he is repaid the principal amount along with the additional interest/premium on redemption in installments as per the terms of issue.

Equity shares with Detachable warrants

The holder of the warrant is eligible to apply for the specified number of shares on the appointed date at the pre-determined price.

Deep Discount Bond

For a deep discount price of Rs.2,700/- in IDBI the investor got a bond with the face value of Rs.1,00,000. The bond appreciates to its face value over the maturity period of 25 years.

Fully Convertible debentures with interest (optional)

In this case there is not interest payment involved say for the first 6 months. Then the holder can exercise option and apply for securities at a premium without paying additional amount. However interest will be payable at a determined rate from the date of first conversion to second/final conversion and in lieu thereof equity shares are issued.

Fully Convertible Cumulative Preference Share (Equipref)

Part A is convertible into equity shares automatically and compulsorily on the date of allotment without any application by the allotter, and part B is redeemed at par/converted into equity after a lock in period at the option of the investor, at a price 30% lower than the average market price. The dividend is given only for part B shares.

Sweat equity Shares

Sweat equity shares can be issued by the for providing know how or making available rights in the nature of intellectual property rights or value additions.

Disaster bonds

These are issued by companies and institutions to share the risk and expand the capital to link investors return with the size of insurer losses. The bigger the losses, the smaller the return and vice-versa. The coupon rate and the principal of the bonds are decided by the occurrence of the casualty of disaster and by the possibility of borrowers defaults.

Option bonds

Interest is payable on maturity or periodically and redemption premium is offered to attract investors.

Easy exit bonds=

This instrument covers both bonds which provide liquidity and an easy exit route to the investor by way of redemption or by back where investors can get ready encashment in case of need to withdraw before maturity.

Pay in Kind Bonds

This refers to bonds wherein interest for the first three to five years is paid through issue of additional bonds, which are called baby bond as they are derived from parent bond

Split coupon debentures

This instrument is issued at a discounted price and interest accrues in the first two years for subsequent payment in cash. This instrument helps better management of cash outflows in a new project depending upon cash generating capacity.

Floating rate bonds and notes

This instrument is used by the issuers to hedge themselves against the volatility in interest rates.

Stock invest Scheme

This is a legal and non negotiable instrument like a cheque and is utilized to subscribe a capital issue. The availability of stock invest helps investors to earn interest until such time the allotment is made be the companies considering the time taken in finalizing and making the allotment and dispatch. In this case the investor’s money is not blocked without income while they respond to primary market issues. For the issuing companies, this is an assured investment. Funds remain the bank under lien till the date of allotment.

Clip and strip bonds

Clip and strip bonds also referred to as coupon notes split the principal and coupon portions of a bond issue and two separate coupon instruments are sold to the investors. The gain to the investor is difference coupon bonds where the investor pays discount for it and receives the payment at a lower rate.

Dual convertible bonds

A dual convertible bond is convertible into either equity shares or fixed interest rate debentures/preference shares at the option of the lender.

Debt instruments with debt warrants

Debt instruments may be issued with debt warrants which give the holder the option to invest in additional debt on the same terms within the period specified in the warrant.

Indexed rate notes

In indexed rate notes, the interest rate fixation us postponed till the actual date of placement, rather than fixing it on the date of the commitment. The interest rate is computed on the date of take down at the then prevailing private placement rates, using a formula based on the index such as the 182 days treasury bill yield rates. These instruments are beneficial to a company in a high interest rate environment, if the interest rates are expected to decline between the date of commitment and the date of takedown.

Stepped coupon bonds

Under stepped coupon bonds, the interest rate is stepped up or down during the tenure of the bond. The main advantage to the investor is the attraction of higher rate of interest in case of general rise in interest rates.

Dual option warrants

Dual option warrants are designed to provide the buyer with good potential of capital appreciation and limited downside risk. Dual option warrants may be used to sell equity with two warrants – one warrant giving right to the purchaser to be allotted one equity share at the end of a certain period and another warrant with a debt or preference share option.

Extendable Notes

Extendable notes are issued for 10 years with flexibility to the issue to review the interest rate very two years. The interest rate is adjusted every two years to reflect the then prevailing market conditions by trying the interest rate to a spread over a bond index such as two years treasury notes. However, investors have a put option at par value every tow years i.e. they have the right to sell the bond to the issuer at a fixed rate on the expiry of every two years.

Level pay floating rate notes

Level pay floating rate notes are issued for a long period of time say 20 years, with adjustment in interest rate every five years. These notes provide for level payments for time intervals during the term of the note, with periodic interest adjustments tied to an index, and adjustments to the principal balance to reflect the difference between the portion of the payment allocable to interest and the amount of floating rate interest actually incurred.

Industrial revenue bonds

Industrial revenue bonds are issued by financial institutions in connection with the development or purchase of industrial facilities. Used to purchase or a construct facilities which are subsequently leased or sold to the company.

Commodity bonds

Commodity bonds are bonds issued to share the risk and profitability of future commodity prices with the investor. For example, petro bonds, silver bonds, gold bonds and coal bonds.

A petro bond may carry a fixed rate of interest with part of the face value of the bonds denominated in barrels of oil. There would be a floor in the face value of the bond. In view of the upside profit potential in oil prices, the interest rate could be lower than the market rate of interest. These bonds may be issued for decontrolled items.

Participating Debenture and preference shares

These debentures are profit sharing debentures which are unsecured with a right to participate in the profits of companies

Third party convertible debentures

These are debt instruments with warrant attached which gives an option to subscribe to the equity shares of another company at a price lower than the market price.

Possible variations of the instruments are detachable equity coupons and debentures with equity coupons.

Mortgage backed securities

These securities assure a fixed return which is derived form the performance of the specific assets. They are issued with a maturity period of 3 to 10 years and backed by pooled assets like mortgages, credit card receivables, etc. There is a commitment from the loan originator and/or intermediary institution to ensure a minimum yield on maturity.

Types of Asset backed Securities

There are tow types of asset backed securities. In the first type, the investors have and interest in the underlying assets, usually through a special purpose trust. The second type is where a special purpose vehicle, usually a company issues negotiable securities whose value is derived from and secured by the assets held by the vehicle. These are known as ‘securitisation’ in UK and ‘asset backed securities’ in USA.

Convertible debentures redeemable at premium

These are convertible debentures issued at face value with a put option to the investor to resell the debentures to the issuer at a premium on a future date. The date value of the debentures is higher than the market value of the equity shares into which they are to be converted.

Carrot and stick bond

Another variation of the above instrument is the carrot and stick bond. The carrot is the lower than normal conversion premium i.e. the premium over the present market price of the equity shares is fixed at a reasonable level so that the price of the equity shares need not increase significantly to make conversion practical. The stick is the issuer’s right to call the issue at a specified premium if the price of the equity shares is traded above a specified percentage of the conversion price.

Debt for equity swap

These instruments give an offer to the debt holders to exchange the debt for equity shares of the company.

Variations of this instrument are mortgage backed securities that split the monthly payment from underlying mortgages into two parts – each receiving a specified portion of the principal payments and a different specified portion of the interest payments

Zero coupon convertible notes

This are debt convertible into equity shares of the issuer. If investors choose to convert, they forgo all the accrued and unpaid interest

Global depository receipts

It is a form of depository receipt or certificate created by the Overseas Depository Bank outside India denominated in dollar and issued to non-resident investors against the issue of ordinary shares or foreign currency convertible bonds of issuing company a company issues rupee denominated shares in the name of depository which delivers these shares to its local custodian bank, the holder on records, thus depository. The depository then issues dolor denominated depository receipts (or GDR) against the shares registered with it generally on GDR is equivalent to one or more (rupees denominated) shares. It is traded like any other dollar denominated security in the foreign markets.

Foreign Currency Convertible Bonds (Fccbs)

A foreign currency convertible bond (FCCB) is a quasi debt instrument which is issued by any corporate entity, international agency or sovereign state to the investors all over the world. They are denominated in any freely convertible foreign currency. FCCBs represent equity linked debt security which can be converted into shares or into depository receipts. securities such as Yankee Bonds, Samurai Bonds, Euro bonds etc. can be issued in US, Japanese and European Debt markets.

Stockinvest Scheme

A legal and non-negotiable instrument like a cheque, is used to subscribe a capital issue. It is issued in order to ensure that investors fund continued to earn interest till such time the allotment is made by companies and they shou7ld not make undue advantage at the cost of investors’ savings. The advantage to the investors is that their money is not blocked while participating in the primary market issues.

A guaranteed payment instrument, the Stockinvest is to be attached to the new capital issue application, as against cash/cheque/draft which means that instead of parting with the funds immediately the funds remain in the bank under lien till the date of allotment. The money will earn interest for the investor for this period.


Derivatives are contracts which drive their values from the value of one or more of other assets (known as underlying assets)*. Some of the most commonly traded derivatives are futures, forward, options ad swaps.

Underlying Assets include equities, foreign exchange, interest bearing securities and commodities.


Futures is contract to buy or sell and underlying financial instrument at a specified future date at a price when the contract is entered.

For successful futures, tow types of participants i.e. hedgers and speculators are essential. Financial futures contracts may be of various types such as:

— Interest Rate Futures
— Treasure Bill Futures
— Euro-Dollar Futures
— Treasury Bond Futures
— Stock Index Futures
— Currency Futures.

An option contract conveys the right to buy or sell a specific security or commodity at specified price within a specified period of time.


Treasury Bills:

The Reserve Bank of India holds the major portion of outstanding treasury bills. These bills have a low yield and hence the other holders of treasury bills such as Banks rediscount these bills with the RBI at the earliest opportunity, 91 days 182 days.

Commercial Bills:

Commercial bills are basically negotiable instruments accepted by buyers for goods or services obtained by them on credit. Such bills being bills of exchange can be kept upto the due date and encashed by the seller or may be endorsed to a third party in payment of dues owing to the latter.

Certificate of Deposits (CD)

A certificate of deposit is a document of title to a time deposit. Being a bearer document, certificate of deposit is readily negotiable and attractive both to the Banker and to the investor in as much as the banker is not required to encash the deposits prematurely while the investor can sell the same in the secondary market. This ensures ready liquidity. Certificate of deposit is issued in multiple of Rs.1,00,000 subject to a minimum of Rs.5,00,000. The maturity varies between 91 days and one year. Interest rate is determined by the demand and supply factors. CDs are transferable after 45 days.

Commercial Paper (CP)

The commercial paper refers to unsecured promissory notes issued by credit worthy companies to borrow funds on a short term basis.

Call Money, Term Money and Notice Money

Call Money or short notice money deal with one day or 14 day as a period at the market rate of interest. Banks, DFHI and Mutual Funds deal in these instruments. The Term Money will be for 14 to 90 days, with highly elastic interest rates fixed by market forces based on demand and supply.

Money at Call & Short Notice

Money at call is outright money. Money at short notice is for a maturity of or up to 14 days. Money of higher maturity is known as inter-bank deposits. The participants are banks and all India financial institutions as permitted by RBI.

Bills Rediscounting

Bill- financing seller drawing a bill of exchange and the buyer accepting it, thereafter the seller discounting it with, with, say, a bank. The bills are liquidated on maturity. Hundies (an indigenous form of bill of exchange) have been popular.

Inter-bank Participation (IBP)

(a) on risk sharing basis

(b) without risk sharing

The lender bank shares the losses with borrower banks. The issuing banks show participation as borrowing, while the participating banks show it as advances to banks. The IBP scheme is advantageous as it is more flexible of access compare to the regular consortium tie up.

Money Market Mutual Funds (Mmmfs) - 364 day Treasury Bills

When savers switch their saving from banks to capital markets in search of higher returns and capital appreciation, there arises the institution of mutual funds – collecting small savings of a large number of savers, and investing them in capital market instruments, using their professional expertise, superior capability and economies of scale.

Call Money Market and Short-Term Deposit Market

GIC, IDBI, NABARD participants in the Commercial Bill market Institutions and mutual funds All bank subsidiaries the lender was required to offer an undertaking that he had no out standings against loans taken from the banking sector. The borrowers were essentially the banks private mutual. When DFHI borrows, a call deposit receipt is issued to the lender against a cheque drawn on RBI for the amount lent. If DFHI lends, it issues to the RBI a cheque representing the amount lent to the borrower against the call deposit receipt.

Commercial Bill market and Bill rediscounting scheme

RBI has enlarged the list of eligible institutions for rediscounting of bills by including organisations like IRBI, IFCI, ECGC, NABARD, NHB, Exim-bank, HDFC, Mutual Funds and State and Urban Cooperative Banks apart from commercial banks and Fls.

Gilt-edged (Government) Securities Market

These securities are issued by Governments such as Central and State Governments Semi-Government Authorities, City Corporations, Municipalities, Port Trust, State Electricity Boards, Metropolitan Authorities, Housing Boards and Large Financial Institutions.



Credit cards

A credit card is a system of payment named after the small plastic card issued to users of the system. A credit card is different from a debit card in that it does not remove money from the user's account after every transaction. In the case of credit cards, the issuer lends money to the consumer (or the user) to be paid to the merchant. It is also different from a charge card (though this name is sometimes used by the public to describe credit cards), which requires the balance to be paid in full each month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged

A user is issued credit after an account has been approved by the credit provider, and is given a credit card, with which the user will be able to make purchases from merchants accepting that credit card up to a pre-established credit limit. Often a general bank issues the credit, but sometimes a captive bank created to issue a particular brand of credit card, such as Chase, Wells Fargo or Bank of America, issues the credit.

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates his/her consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a 'Card/Cardholder Not Present' (CNP) transaction.

Electronic verification systems allow merchants to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or Point of Sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is in the United Kingdom commonly known as Chip and PIN, but is more technically an EMV card.

Other variations of verification systems are used by eCommerce merchants to determine if the user's account is valid and able to accept the charge. These will typically involve the cardholder providing additional information, such as the security code printed on the back of the card, or the address of the cardholder.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect (see Fair Credit Billing Act for details of the US regulations). Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed (typically at a much higher rate than most other forms of debt). Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts, thus avoiding late payment altogether as long as the cardholder has sufficient funds.

Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid.

ATM Cards

The most common form of electronic money transfer is the ATM, or automated teller machine, which enables consumers to access existing accounts and make deposits, obtain cash, and transfer funds between accounts. To access an account from an ATM, a consumer must first get an ATM card from his or her bank or financial institution. Some other types of cards, such as credit cards and some stored value cards, can also be used at ATMs to get cash. The consumer inserts or swipes the card into the machine, enters a PIN (personal identification number) on the keypad, and then can perform the transaction. When the transaction is completed, the consumer receives a receipt showing the date, the dollar amount and the type of transaction.

Debit Cards

Plastic cards encoded with electromagnetic identification. Financial institutions may issue them to customers who meet certain qualifications. Customers can use their card to pay for purchases electronically using point-of-sale terminals. Debit cards are often issued with ATM capability.

Oyster wave-and-pay

A combined travel and payment card from Transport for London, Barclaycard and Visa works, a trial has found. "The new card will give passengers the ability to pay for low cost goods and take advantage of Oyster fares on the same card reducing the need to carry cash," said Shashi Verma, director of Oyster card at TfL, in a statement. Some 10 million Oyster cards have been issued since their launch.

The system, which is expected to be launched to customers later this year, has been trialled by 60 Barclaycard employees since December. The 60 testers have been paying for purchases at a coffee shop in the Northampton head office using a contactless terminal and have also used the combined cards 2,500 times for travel on the TfL network in London.

Touch and go payment cards

Touch and go payment cards for Londoners from next summer. A new touch and go payment card that will allow Londoners to pay for their tube journey, newspaper and coffee is expected to be available by the summer of 2007.

Free Digital Money

Free Digital Money is a free open source project aimed at promoting ideas and stimulating further innovation in the field of digital bearer money. It is like cash and can be transferred person-to-person without going through a bank or Pay Pal account.

It is a teaching tool, a simple pgp-based digital coin system, free and open, easy to use, based on cryptographic tools for authentication, encryption and non-repudiation, pseudonymous, a basis for future development

Triple Deal

An international payment service provider (PSP), Triple Deal offers a full-service payment based in the Netherlands. As a guarantor between buyer and seller on the Internet, Triple Deal acts as a reliable third party to create confidence and certainty in Internet transactions. Triple Deal has changed her name to docdata payments. docdata payments are an innovative international provider of payment solutions to companies and organizations that sell in a non face-to-face environment. Our solutions ensure the safe, quick and correct online processing of a payment, from the moment that a customer would like to pay for the order though to the moment that the funds are settled and correctly administered in your financial administration. This makes docdata payments a critical player in the online order-to-cash process.

Merchant Account Services

The aim of the site is to provide merchants with the tools they need to make informed decisions when acquiring merchant services. Authorize.Net® is unquestionably the most popular payment gateway in use today. In fact, it is synonymous with ecommerce and is often confused as a payment processor. Its vast popularity with shopping carts, it is integrated with every major and minor shopping cart available, make it a natural choice for merchants wishing to begin processing sales online.

BT click&buy

This BT facility allows Internet users to pay for online content and services via their BT home or business telephone bill.


A system designed for annonymous electronic transactions, including micropayments.

Geek Credit, p2p digital currency

Geek Credit is a digital complementary currency for internet. It is decentralized, secure, interest and demurrage free. It is backed by mutual credit (time). There is no central issuing and control authority, so it is a true peer-to-peer currency.

Smart Voucher

Smart Voucher delivers the most comprehensive, flexible and future proof vouchering solutions available today. A simple platform for securely managing and transferring personal payments between people and/or organizations both online and offline in real time. Smart Voucher and PSKW are working together with the US pharmaceutical industry to lower the cost of American’s health care.

DM - Digital Money

An open source micropayment system based on Java, JXTA, XML, OpenPGP and SSL.


Clickshare allows a consumer to have one account at a most-trusted website and buy from other websites without having to pass around a credit-card number, register or give out personal information. One ID, one account, one bill.


A low-cost electronic payment system for processing micropayments based on the work of Ron Rivest, father of the RSA Public Key crypto-security system, and Silvio Micali, two of the world's leading cryptographers and information security experts.


A system developed by Newgenpay that can be used for micropayments.


An international system which allows individuals to send money to each other by e-mail. The service started in the United States but has now spread to many parts of the world. The safer easier way to pay online without exposing credit informations.

Future visions: A new way for e-commerce

Wingham Rowan, host of the British TV series cyber.café, describes his brainchild, Guaranteed Electronic Markets or GEMs, a framework for online markets in which anyone could sell anything with each transaction underpinned by the government in the country of operation.

Internet Cash

An anonymous system using prepaid cards that may be purchased at convenience stores, retail outlets or over the Internet from the website.

It is an offering the only secure Pre-Paid Card in the world and, unique among all payment companies, is constructing a new grounds-up, proprietary Secure Internet Payment Network. Security, privacy and convenience for the Internet consumer.

Security and guaranteed payments for our merchants

In addition, we are implementing best security practices with hardware cryptographic devices, top-of-the-line firewalls, and intrusion and network detection systems.


This is a magnetically shielded cardholder which is claimed to protect contactless smartcards from surreptitious, wireless access by hackers, electronic pickpockets or the government.


An electronic payment system for the Internet developed at the Information Sciences Institute of the University of Southern California


Electronic money 100% backed by gold!


A token-based micropayment system.


The NetCard project aims to provide solutions by the development of new protocols and a smartcard based mechanism to manage the necessary functions of authentication, delegation, authorisation, accounting and revocation. The new technology will be tested and demonstrated in a trial multimedia system connecting Cambridge and Manchester universities.

Digital ssl certificate authority vendor, reliable digital certificate authority vendor. Provides two factor authentication solutions and digital signature certificates.

Secure Electronic Transaction

SET is the first global security standard for trading via the Internet.,,sid185_gci214194,00.html


On 16 June 2004, Japan's mobile phone operator, NTT DoCoMo, announced i-mode FeliCa, a service for new handsets to act as electronic wallets. The new handsets will be available in July 2004 with Sony's contactless smartcard chips embedded in them.

DoCoMo introduced a virtual shopping mall for mobile customers in 2003. It enabled customers to purchase goods and pay by debit or credit card or by charging the transaction to their phone bills. Now, an i-mode FeliCa user will be able to wave the handsets over a sensor to pay transit fares, buy goods or confirm his or her personal identity to gain access to a location. i-mode FeliCa will allow users to buy from the 9,000 outlets participating in Sony's Edy e-money system. DoCoMo's system brings together the worlds of prepaid and postpaid transactions.

Gartner says that a contactless credit facility is the most interesting part of the offering. How many retailers' point-of-sale terminals will be able to process contactless credit payments is unclear. Acceptance at the point of sale will be critical to the success of contactless payment schemes. If few retailers accept contactless payments, customers will tire of trying to use them and revert to traditional payment methods.

Gartner has prepared two reports that detail their findings and recommendations:

1. "Market Focus: Contactless Chip Cards, Worldwide, 2003-2008" — Contactless smart cards have been used for some time for access control. Recent successes in transit payment systems is stimulating take up and Gartner predicts a compound annual growth of 34 percent from 2003 to 2008. By Clare Hirst

2. "Smart Bank Cards Could Do More Than Prevent Fraud" — Credit cards are slowly becoming smart cards. But the move, driven by Europay, MasterCard and Visa, should end up achieving more than fraud prevention.

Mobile phone payment

Transport for London (TfL) is expected to launch a trial this week that will enable commuters to pay for their journey using their mobile phone in a similar way to the ease of use they have become accustomed to with Oyster cards, according to media reports.


LUUP is a payment solution for online and mobile payment. Participants get a mobile wallet they can use to pay with their mobile phone or online. Just like an ordinary wallet, the LUUP wallet can contain cash and credit/debit cards. LUUP is a leader in the mobile payment industry specializing in payment processing, the development of mobile payment applications and the hosting of stored value accounts for financial institutions. By partnering with LUUP, banks and financial institutions can now offer mobile payments and remittance services on a global basis as a part of a growing global network.

Put the tab on my mobile

Simpay, founded by Orange, T-Mobile and Vodafone, along with Telefónica Móviles of Spain, is launching a system that will allow customers to charge things directly to their mobile phone bill. That's not a new thing but, just as with Visa or Mastercard, with Simpay it will not matter who your bill is from, who the merchant is and who you are connecting through. Simpay will mean they won't have to. As with credit card networks, the merchant only needs to have an account with one of the connected networks, and every customer of every network connected to Simpay will be able to buy things from them, and charge the cost to their mobile bill. The merchant is guaranteed to get paid, and promptly: something so far not taken for granted.

Digital money

Simpay is different from past online payment systems - it isn't creating currency, for one thing. But if Simpay doesn't work, its failure will not be unique. The internet is riddled with the corpses of online payment companies that failed to capture the hearts or wallets of customers. Electronic payment over the internet has always been like this. One of the first such firms, and holder of many of the patents of the art, Digicash only lasted from 1994 to 1998, when it joined fellow trailblazer First Virtual in the great Monopoly money box in the sky.

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