Bank

DISADVANTAGES OF PAPER MONEY:-

1. Restricted Acceptability:-

The acceptance of paper money is limited up to the domestic country while other countries of the world are not ready to accept in case of payments.

2. Fluctuations in the Rate Of Exchange:-

In case of metallic money the value of domestic currency in terms of foreign currencies, rate of exchange remains stable while in case of paper money it remains fluctuating. The devaluation of one country also brings changes in the rate of exchange.

3. Demonetization of Paper Money:-

If the Govt. demonetizes the paper money the paper holder will have a worthless pieces of paper in his hand.

4. Lack of Durability:-

The paper money lacks the essential quality of durability of money. It can be easily destroyed, and then it will have no value.

5. Danger of Inflation:-

The serious defect in paper money is that there is always danger of its over issue. Generally the less developing countries make the difficult budget and this deficit is met by the issuance of paper money. The price level rises and country faces the inflation.

6. Less Stability:-

There is less stability of value in paper money as compared to metallic money. Sometimes it is over issued and people lose confidence in the value of money and they keep their savings in terms of gold and silver.

No doubt paper currency has also some disadvantages but it is a fact that its advantages are weightier.

DISADVANTAGES OF THE PAPER CURRENCY STANDARD

Despite above mentioned merits, the paper currency standard has certain disadvantages, these disadvantages are mentioned below.

1. Inflationary Bias: One of the serious defects of the paper standard is that it has an inflationary bias. As paper notes are inconvertible, there is every likely hood of the government printing note in excess of requirements. Or the government may deliberately resort to the printing press to meet a financial emergency or war or even to need ordinary budget deficits....