Overview
This chapter tells the story of how people moved from swapping goods to using money, and how money itself keeps changing. You begin with the barter system, the direct exchange of goods and services, and the commodities that early societies used as money, from cowrie shells and cattle to the giant Rai stones of Yap Island. Through the story of a farmer who has only an ox but needs shoes, a sweater and medicines, you discover the problems of barter: the double coincidence of wants, the lack of a common measure of value, and difficulties of divisibility, portability and durability. You see that barter still survives in places like the Junbeel Mela of Assam and in everyday swaps. You learn the four functions of money: medium of exchange, measure of value, store of value and standard of deferred payment. Then you follow the journey of money in India: punch-marked kārṣhāpaṇas, coins of the Chalukyas and Cholas, Roman gold found in Tamil Nadu, the anna and the ₹ sign; paper money and the role of the Reserve Bank of India; and finally digital money such as cards, QR codes and UPI, with its benefits and risks.
हिंदी में पढ़ें
वस्तु-विनिमय की जगह धन क्यों आया, धन हमारे लिए क्या करता है, और वह कौड़ियों व सिक्कों से कागज़ी नोटों और यूपीआई तक कैसे बदला।
Learning Objectives
- Explain the barter system and commodity money
- Identify the limitations of barter, including the double coincidence of wants
- Describe examples of barter that survive today, such as the Junbeel Mela
- Explain the four functions of money with examples
- Trace the history of coins in India and interpret what coins reveal
- Explain why paper money developed and the role of the Reserve Bank of India
- Describe forms of digital money and weigh their advantages and risks
Topics in this chapter
7 topics · tap a topic title to jump straight to it.
The barter system: exchange before money
1Think first
2The idea, in plain words
You need a pencil and have a spare eraser. Your friend forgot her eraser but has a spare pencil. You swap. Both of you are happy, and no money changed hands. You have just used the oldest way of trading in the world: the barter system.
Meaning. Barter is the direct exchange of goods or services for other goods or services, without using money. A transaction is any act of buying, selling or exchanging. Long before coins and notes, people bartered grain for cloth, pots for fish or labour for food. In earlier chapters you met people who grew crops and made goods like carnelian beads; they too had to exchange what they had for what they needed.
Commodity money. Over time, people in different places began to use certain commodities (goods that can be traded) that everyone valued as a go-between. These included:
- cowrie shells, salt, tea, tobacco and cloth;
- cattle such as cows, goats, horses and sheep;
- seeds and grain.
Unusual money from around the world.
| Place | What was used as money |
| Yap Island, Micronesia (Pacific Ocean) | Rai stones: giant stone discs |
| Central Mexico and Central America (Aztecs) | Copper ‘tajadero’, shaped like a chopping knife |
| Solomon Islands | Tevau: coils of red bird feathers |
What makes something ‘money’? Money is a common tool that everyone accepts for making and receiving payments in exchange for goods and services. A Rai stone was money on Yap because the people of Yap agreed to accept it. The key idea is general acceptance: money works only because people trust that others will take it.
Today. We use coins and notes, and increasingly mobile phones and computers, to pay. But the story of how we got here begins with barter, and with the problems that barter created, which you will see in the next topic.
Think about it. In a village where everyone grows rice, would rice make good money for buying rice? Probably not, because everyone already has it. A good medium of exchange is something that people want but cannot easily produce for themselves, and that keeps its value.
- Barter: goods or services ↔ goods or services (no money)
- Money = anything generally accepted in exchange for goods and services
3Worked example
- Swapping a spare eraser for a spare pencil.
- Cowrie shells and salt used as commodity money.
- Rai stones on Yap Island.
4Your turn
What is the barter system?
5Remember this
Problems with barter
1Think first
2The idea, in plain words
Imagine you are a farmer in a barter village. You need new shoes, a sweater and medicines for your grandmother. All you can spare is one ox. What do you do?
Step by step. First you must find someone who wants an ox. Swapping a whole ox for just a pair of shoes would be unfair, so perhaps you trade the ox for several bags of wheat. Then you carry the wheat around, looking for a shoemaker who wants wheat, a weaver who wants wheat and a healer who wants wheat. Each time you argue about how many bags are fair. Then you must store the leftover wheat, and carry it again next time. Exhausting! This story shows five problems of barter.
| Problem | Meaning | In the farmer’s story |
| Double coincidence of wants | Each person must have exactly what the other wants, at the same time | He must find someone who wants an ox AND has shoes, a sweater and medicines |
| No common measure of value | No agreed unit to compare the worth of different goods | How many bags of wheat equal one sweater? |
| Divisibility | Some goods cannot be split into smaller parts | He cannot give one-quarter of an ox for a sweater |
| Portability | Some goods are hard to carry | Taking an ox or many sacks of wheat everywhere is difficult |
| Durability | Some goods spoil or lose value if stored | Stored wheat may rot or be eaten by rats |
Double coincidence of wants. This is the biggest problem. It is rare to find someone who wants what you have and also has what you want. Even if you do, the two of you must agree on a fair ratio.
No common measure. If one person feels the exchange is unfair, the deal does not happen. Without a common unit, every trade needs a fresh argument about value.
How money solves them. If the farmer sells his ox for money, he can buy shoes from the shoemaker, a sweater from the weaver and medicines from the healer, even though none of them wants an ox. Prices in money let him compare values easily. Money can be divided into small amounts, is easy to carry, and does not rot, so he can save the rest for later.
Necessity is the mother of invention. As people traded more types of goods over longer distances, these problems became serious. A common medium of exchange was needed, and money came into being.
- Barter problems = double coincidence of wants + no common measure of value + divisibility + portability + durability
3Worked example
- A farmer with an ox who needs shoes, a sweater and medicines.
- Wheat rotting in storage: a durability problem.
- Half an ox cannot be traded: a divisibility problem.
4Your turn
What is meant by ‘double coincidence of wants’?
5Remember this
Barter still lives: Junbeel Mela and everyday swaps
1Think first
2The idea, in plain words
Money has replaced barter almost everywhere, but not completely. Look carefully and you will find barter happening even today.
Junbeel Mela, Assam. In Assamese, jun means moon and beel means wetland. The Junbeel Mela is a three-day socio-cultural fair held every year at Junbeel in Morigaon district of Assam. It begins with Agni Puja, the worship of fire, as a prayer for the well-being of all.
How it began. From the 15th century, chiefs of the Tiwa, Karbi, Khasi and Jaintia communities of Assam and Meghalaya met every year to discuss political issues and keep friendly relations. People of these communities gathered around the meeting, and it grew into a fair where people exchanged their produce.
What is exchanged. Bartering starts early in the morning. People from the hills bring roots, vegetables, fruits, herbs, spices and handmade goods made from forest materials. People from the plains bring rice cakes and other foods that cannot be grown in the hills. Each side gets what it cannot produce, so both gain.
Barter in your neighbourhood.
- Book exchange clubs: you bring books you have read and take new ones; your jungle adventure book may become a friend’s, and her mystery story becomes yours, with no money spent.
- Old clothes for new utensils: a vendor visits homes and offers steel utensils in return for used clothes. The family clears out things it no longer needs, and the vendor resells, reuses or recycles the cloth.
- Swapping among friends: stickers, cards and toys are often traded directly.
Why barter survives here. In each case, the double coincidence of wants is easy to find because people come together for that purpose (a fair, a club) or because a trader specialises in one kind of swap (clothes for utensils). Barter also builds friendship and keeps traditions alive, which is why the Junbeel Mela is valued as a cultural event, not just a market.
Its limits remain. Even at such fairs, people need money for most of their other needs. Barter today is special and limited, not the main way of trade.
- Barter works best when people with matching wants gather in one place
3Worked example
- Junbeel Mela: hill produce for rice cakes from the plains.
- A book-swap club at school.
- Old clothes exchanged for new utensils.
4Your turn
Which communities’ chiefs began the annual gathering that became the Junbeel Mela?
5Remember this
The functions of money
1Think first
2The idea, in plain words
Your parents pay a shopkeeper. The shopkeeper uses that money to pay her workers’ salaries. The workers use it to buy food and pay school fees. The same notes pass from hand to hand, doing useful work at every step. What exactly does money do for us? Economists list four main functions.
| Function | Meaning | Example |
| Medium of exchange | Accepted by all in payment, so we can sell to one person and buy from another | The farmer sells his ox for money and buys shoes, a sweater and medicines from different people |
| Measure of value (common denomination) | Lets us express the worth of all goods in one unit, as prices | A sweater costs ₹600 and shoes ₹900, so the shoes are worth more |
| Store of value | Can be kept and used later without spoiling | The farmer saves money instead of wheat that may rot |
| Standard of deferred payment | Accepted for payments to be made later | Paying ₹50 now and ₹50 next week for a ₹100 book |
Medium of exchange. This solves the double coincidence of wants. You no longer need to find someone who wants exactly what you have. As more people used money, it became the accepted method of payment.
Measure of value. Prices make comparison simple. Instead of asking ‘how many bags of wheat is a goat worth?’, everyone thinks in rupees. This also makes it easier to keep accounts and decide whether a deal is fair.
Store of value. Money lasts. Wheat may rot and cattle may fall sick, but money can be saved for future needs, for example in a bank.
Standard of deferred payment. ‘Deferred’ means put off until later. Suppose a book costs ₹100 and you have only ₹50. The shopkeeper may let you pay ₹50 now and ₹50 later. Because both of you count the debt in rupees, there is no confusion. Loans, instalments and salaries paid at the end of a month all depend on this function.
Money links today and tomorrow. The economist John Maynard Keynes pointed out that money is important because it connects the present and the future: we can earn now and spend later, or buy now and pay later.
A caution. Money is useful only as long as people trust it. If people stop accepting it, it can no longer perform any of these functions.
- Functions of money = medium of exchange + measure of value + store of value + standard of deferred payment
3Worked example
- Using rupees to buy vegetables (medium of exchange).
- Comparing a ₹600 sweater with ₹900 shoes (measure of value).
- Saving money in a bank (store of value).
- Paying for a phone in monthly instalments (deferred payment).
4Your turn
Which function of money lets a farmer save for next year instead of storing grain that may rot?
5Remember this
The journey of coins: from paṇas to the ₹ sign
1Think first
2The idea, in plain words
Pick up a ₹5 coin and look closely: a number, a design, the words ‘भारत’ and ‘India’, and a year. Coins like this have a long history in India.
| Approximate time | Form of money in India |
| c. 6000 BCE onwards | Barter |
| c. 1000 BCE | Cowrie shells |
| c. 600 BCE | Metal coins: copper, silver, gold, iron |
| 1861 | Official paper money |
| 1980s | Debit and credit cards |
| 2016 | UPI |
Early coins. Coins were among the earliest forms of money. Rulers issued coins for their kingdoms, and only the ruler controlled minting (making coins). Coins of powerful rulers came to be accepted in other kingdoms too, which helped trade across regions. Early Indian coins were made of gold, silver, copper or their alloys (mixtures of metals that make a coin stronger). They were called kārṣhāpaṇas or paṇas, and had symbols punched on them called rūpas. The word ‘rūpa’ is linked to our word ‘rupee’, and in Tamil, Telugu and Malayalam money is still called paṇam, and in Kannada haṇa.
Pictures on coins. The head side (obverse) and tail side (reverse) carried animals, trees, hills, rulers and deities. Coins of the Chalukyas of Kalyana show Varāha, an avatar of Viṣhṇu, on one side and a royal parasol on the other. Chola silver coins (850–1279 CE) carry the Chola tiger emblem.
Coins tell us about trade. Roman gold coins with the heads of Roman emperors have been dug up at Pudukkottai in Tamil Nadu and in parts of Kerala. Because so much Roman gold came into India in exchange for Indian goods, scholars conclude that this trade was in India’s favour.
The anna. Before decimal coins, 1 rupee was divided into 16 annas. In 1947, one anna could buy a dozen bananas.
Coins today. Modern coins are alloys mostly of iron, with small amounts of chromium, silicon and carbon. They come in different sizes for different values and carry both Hindi and English. Special coins mark national events, such as 75 years of Independence.
The ₹ sign. Adopted by the Government of India in 2010 and designed by Udaya Kumar of IIT Bombay, it blends the Devanagari ‘र’ and the Roman ‘R’. Its two horizontal lines at the top recall the national flag and the ‘equal to’ sign.
- 1 rupee = 16 annas (old system)
- 1 rupee = 100 paise (today)
3Worked example
- Kārṣhāpaṇas with punched symbols called rūpas.
- Chola coins with a tiger emblem.
- Roman gold coins found at Pudukkottai.
4Your turn
What were the punched symbols on early Indian coins called?
5Remember this
Paper money and the Reserve Bank of India
1Think first
2The idea, in plain words
Imagine buying a piece of land with copper coins. You would need sacks of them, a cart to carry them and a strong room to store them. As coins came to be used for everything, from vegetables to land, this became a real problem.
The answer: paper money. Paper money was first used in China. It was introduced in India in the late 18th century, when banks such as the Bank of Bengal and the Bank of Bombay issued notes; early notes were printed on one side only (uniface). Official government paper money came in 1861. Today coins are used for small amounts and notes for larger ones.
Currency and denominations. Currency is the system of money used in a country; India’s currency is the rupee, in coins and notes. Denominations are the values in which coins and notes are issued. Common Indian coins are ₹1, ₹2, ₹5, ₹10 and ₹20; common notes are ₹10, ₹20, ₹50, ₹100, ₹200 and ₹500.
Who issues money today? In ancient times rulers issued coins. Today, in India, the Reserve Bank of India (RBI) is the central authority that controls the issue of currency notes. It is illegal for anyone else to issue currency.
Security and heritage on notes.
- Notes carry pictures of India’s heritage on the reverse; look at a ₹50 or ₹100 note and find the monument or scene shown.
- Raised printing and special marks help visually impaired people identify the denomination by touch.
- The RBI adds security features, such as watermarks and a security thread, to make forging notes difficult.
Why paper money works. A ₹500 note is just printed paper; its value comes from trust. People accept it because the RBI issues it and the law requires it to be accepted in payment. This is the same idea of general acceptance that made Rai stones money on Yap Island.
Advantages over coins. Notes are light and easy to carry (portability), can represent large values, are easy to count and store. But they can tear, be lost or be stolen, and they can be forged, which is why security features matter.
- Currency in India: coins (small amounts) + notes (larger amounts), issued under RBI control
3Worked example
- Bank of Bengal’s early one-sided notes.
- Notes of ₹10 to ₹500 in daily use.
- Raised marks that help visually impaired people identify notes.
4Your turn
Which institution controls the issue of currency in India today?
5Remember this
Digital money: cards, QR codes and UPI
1Think first
2The idea, in plain words
Krishnappa sells seasonal fruit from a cart. Next to his neatly arranged mangoes is a small card with a QR code. Customers scan it with their phones and pay; the money goes straight into his bank account. He never has to count change.
Money you cannot touch. Coins and notes are tangible: you can hold them. Today money also exists in intangible, electronic form, called digital money. It moves from one bank account to another without any coin or note changing hands.
Ways of paying digitally.
- Debit cards take money directly from your bank account.
- Credit cards let you pay now and repay the bank later, a modern use of money as a standard of deferred payment.
- Net banking lets you transfer money through a bank’s website.
- UPI (Unified Payments Interface), launched in India in 2016, lets people send money instantly from a mobile phone, often by scanning a QR code.
What is a QR code? QR stands for ‘quick response’. It is a pattern of small black and white squares that a smartphone camera can read. It holds information about the receiver’s bank account, so the payer does not need to type account details.
Why digital money spread. It is fast, works for any amount from ₹5 to lakhs, needs no change, and leaves a record of every payment. Small sellers like Krishnappa can accept payments from anyone with a phone.
Care needed. Digital payments need a phone, internet and a bank account, which not everyone has. Users must protect their PIN and never share passwords or OTPs, because fraudsters try to trick people. Some people and shops still prefer cash because it is simple and private.
| Cash | UPI | |
| Needs a phone and internet? | No | Yes |
| Exact change needed? | Often | No |
| Record of payment? | No, unless a bill is given | Yes, automatically |
| Main risk | Loss or theft | Fraud if PIN or OTP is shared |
The journey continues. From swapping erasers to scanning QR codes, money has changed form many times. Its job has stayed the same: to make exchange easy.
- Digital money: payer’s bank account → (card, net banking or UPI) → receiver’s bank account
3Worked example
- Krishnappa’s fruit cart with a QR code.
- Paying a bill by debit card.
- Sending money to a friend by UPI.
4Your turn
What does UPI stand for?
5Remember this
Key Concepts
- Barter system
- Exchanging goods and services directly for other goods and services without money.
- Transaction
- An act of buying, selling or exchanging.
- Commodity
- A product or good that can be traded, bought and sold.
- Money
- Anything generally accepted as payment for goods and services.
- Double coincidence of wants
- A situation in which each of two people has what the other wants, allowing direct exchange.
- Common measure of value
- An agreed unit for comparing the worth of different goods and services.
- Divisibility
- The ability of something to be split into smaller parts.
- Portability
- The ability of something to be carried easily.
- Durability
- The ability of something to last without spoiling.
- Medium of exchange
- The function of money as something accepted by all in payment.
- Store of value
- The function of money that lets it be saved for later use.
- Standard of deferred payment
- The function of money that allows payments to be made later.
- Minting
- The process of making coins; a mint is where coins are made.
- Kārṣhāpaṇa
- An early Indian coin, also called paṇa, with punched symbols called rūpas.
- Obverse and reverse
- The head side and the tail side of a coin.
- Currency
- The system of money used in a country, such as the Indian rupee.
- Denomination
- The value in which a coin or note is issued, such as ₹10 or ₹500.
- Reserve Bank of India
- The central authority that controls the issue of currency in India.
- Digital money
- Money in electronic form transferred between bank accounts, such as through UPI.
End-of-Chapter Trial Paper & Test Questions
Topic-wise questions to test your understanding of every concept in this chapter.
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How does the barter system work, and what commodities were used in it? / वस्तु-विनिमय प्रणाली कैसे काम करती है और इसमें किन वस्तुओं का उपयोग होता था?
Show answer
In barter, people exchange goods or services directly without money, and commodities such as cowrie shells, salt, tea, cloth, cattle and seeds were commonly used as a medium of exchange. / वस्तु-विनिमय में लोग बिना धन के वस्तुओं या सेवाओं का सीधा आदान-प्रदान करते हैं, और कौड़ियाँ, नमक, चाय, कपड़ा, पशु और बीज जैसी वस्तुएँ विनिमय के माध्यम के रूप में प्रयोग होती थीं।
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What were the limitations of the barter system? / वस्तु-विनिमय प्रणाली की सीमाएँ क्या थीं?
Show answer
Barter needed a double coincidence of wants, had no common measure of value, and faced problems of divisibility, portability and durability, since some goods cannot be split, carried easily or stored. / वस्तु-विनिमय में आवश्यकताओं का दोहरा संयोग चाहिए था, मूल्य का कोई सामान्य माप नहीं था, और विभाज्यता, सुवाह्यता तथा टिकाऊपन की समस्याएँ थीं, क्योंकि कुछ वस्तुएँ न बाँटी जा सकती हैं, न आसानी से ले जाई जा सकती हैं, न रखी जा सकती हैं।
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Explain double coincidence of wants with an example. / आवश्यकताओं के दोहरे संयोग को उदाहरण सहित समझाइए।
Show answer
It means each person must have exactly what the other wants; a farmer with an ox who needs shoes must find a shoemaker who both has shoes and wants an ox, which is rare. / इसका अर्थ है कि प्रत्येक व्यक्ति के पास ठीक वही होना चाहिए जो दूसरा चाहता है; जूते चाहने वाले बैल के मालिक किसान को ऐसा मोची ढूँढना होगा जिसके पास जूते हों और जो बैल भी चाहता हो, जो कम ही होता है।
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What are the four functions of money? / धन के चार कार्य कौन-से हैं?
Show answer
Money is a medium of exchange, a measure of value that expresses prices, a store of value that can be saved, and a standard of deferred payment that allows paying later. / धन विनिमय का माध्यम है, मूल्य का माप है जो कीमतें बताता है, मूल्य का संचय है जिसे बचाया जा सकता है, और स्थगित भुगतान का मानक है जिससे बाद में भुगतान संभव होता है।
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What is the Junbeel Mela and why is it special? / जूनबील मेला क्या है और यह विशेष क्यों है?
Show answer
The Junbeel Mela is a three-day annual fair in Morigaon district of Assam where hill and plains communities still barter goods such as roots, herbs, crafts and rice cakes, a tradition linked to meetings of tribal chiefs since the 15th century. / जूनबील मेला असम के मोरीगाँव ज़िले में लगने वाला तीन दिन का वार्षिक मेला है, जहाँ पहाड़ और मैदान के समुदाय आज भी कंद, जड़ी-बूटियाँ, शिल्प और चावल की टिकिया जैसी वस्तुओं का विनिमय करते हैं; यह परंपरा पंद्रहवीं सदी से जनजातीय मुखियाओं की बैठकों से जुड़ी है।
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What were the main features of ancient Indian coins? / प्राचीन भारतीय सिक्कों की मुख्य विशेषताएँ क्या थीं?
Show answer
Ancient Indian coins, called kārṣhāpaṇas or paṇas, were issued by rulers, made of gold, silver, copper or alloys, and carried punched symbols called rūpas and motifs of animals, trees, rulers and deities. / प्राचीन भारतीय सिक्के, जिन्हें कार्षापण या पण कहते थे, शासकों द्वारा जारी होते थे, सोने, चाँदी, ताँबे या मिश्र धातुओं से बने होते थे और उन पर रूप कहलाने वाले ठप्पे तथा पशु, वृक्ष, राजा और देवताओं के चित्र होते थे।
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What do Roman gold coins found at Pudukkottai tell us? / पुदुक्कोट्टई में मिले रोमन सोने के सिक्के हमें क्या बताते हैं?
Show answer
They show that south India traded with the Roman world, and since much Roman gold came into India in exchange for Indian goods, scholars conclude that the trade was in India’s favour. / वे बताते हैं कि दक्षिण भारत का रोमन जगत से व्यापार था, और चूँकि भारतीय वस्तुओं के बदले बहुत-सा रोमन सोना भारत आया, इसलिए विद्वान मानते हैं कि व्यापार भारत के पक्ष में था।
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According to the Arthaśhāstra, a yearly salary of 60 paṇas could be replaced by one āḍhaka (about 3 kg) of grain a day. About how much grain was one paṇa worth? / अर्थशास्त्र के अनुसार 60 पण का वार्षिक वेतन प्रतिदिन एक आढ़क (लगभग 3 किलो) अनाज के बराबर था। एक पण लगभग कितने अनाज के बराबर था?
Show answer
In a year that is about 365 × 3 = 1,095 kg of grain for 60 paṇas, so one paṇa was worth about 1,095 ÷ 60 ≈ 18 kg of grain. / एक वर्ष में 60 पण के बदले लगभग 365 × 3 = 1,095 किलो अनाज मिलता, इसलिए एक पण लगभग 1,095 ÷ 60 ≈ 18 किलो अनाज के बराबर था।
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Why did paper money replace coins for large payments, and who issues it in India? / बड़े भुगतानों के लिए कागज़ी मुद्रा ने सिक्कों का स्थान क्यों लिया और भारत में इसे कौन जारी करता है?
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Large numbers of coins were hard to carry and store, so lighter paper notes came into use for higher values; in India today only the Reserve Bank of India controls the issue of currency. / बड़ी संख्या में सिक्के ले जाना और रखना कठिन था, इसलिए बड़े मूल्यों के लिए हल्के कागज़ी नोट प्रयोग में आए; आज भारत में केवल भारतीय रिज़र्व बैंक मुद्रा जारी करने पर नियंत्रण रखता है।
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What is digital money? Give two examples and one precaution. / डिजिटल धन क्या है? दो उदाहरण और एक सावधानी बताइए।
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Digital money is money in electronic form moved between bank accounts, for example through UPI or a debit card; users must never share their PIN or OTP with anyone. / डिजिटल धन इलेक्ट्रॉनिक रूप में धन है जो बैंक खातों के बीच भेजा जाता है, जैसे यूपीआई या डेबिट कार्ड से; उपयोगकर्ताओं को अपना पिन या ओटीपी कभी किसी को नहीं बताना चाहिए।
Related Laws & Principles
Explore allFoundational laws & principles behind this chapter. Each one opens a full page — what it says, why it matters, five practice questions and the mistakes to avoid.