Now,we will discuss about credit cards. In the western world, the use of credit cards is predominant. People buy things with this card, so that they do not have to pay the cash at that instance. As people can buy goods and services with this card, they started considering it as equal to money. The banks have also started to provide ATM facilities in credit cards.People can withdraw cash by these cards. Thus, it may be right to consider credit card as a form of money.
But this consideration is wrong from a technical perspective. Money is not just a medium of exchange. There are several properties of money. They are as per the following:
• Money gives a clear sense of value measurement. For example, the price of any good or service can be $3 or $5.
• Money is a medium of exchange in any trade. One needs money for buying something, and gets money for selling something.
• People can store money for an infinite duration. It is a form of security for emergency purposes in future. Storing the money reflects the value of money.
• Money is a form of liquidity. It gives us the ease to buy or sell anything. Imagine a world, where one needs oyster shells for a transaction. How tough it can be?
• Money is resilient, and anyone can divide it into several denominations.
These are some of the critical properties of money. Moreover, the central bank of any country controls the money supply. So, it decides the direction and level of economic standard of any nation. Credit cards do not display these properties. So, we cannot call them as a different form of money.
Any conception becomes clear with elaborate examples. We will show two examples to explicate why credit cards are not a form of money.
1. PURCHASING THROUGH CREDIT CARDS
When was the last time you bought something with a credit card? Not long back we believe. Then let us ask you a simple question. Have you already paid your credit card bills? Or those bills are still pending?If you have not paid your bills yet, then how the transaction took place?Here is the answer. Credit card comes with a promise to pay. It is different from actually making the payment. In this sense, it is a loan that you have taken with a promise to repay within the credit holiday.Now the question comes, who has given you that loan?The credit card issuing bank gives you that loan. After making the transaction, issuing bank will pay the amount on your behalf. After that, the bank will give you a certain period for repaying that amount.If you fail to pay the bill within that period, the bank will charge you with interest. If the credit card is a form of money, then why will you have to pay the interest?It is because you have done the transaction by taking a loan.
Now, let us take the second option. That means you are paying the bill.This bill payment reconciles the transaction made by the bank. Then there are two transactions. The issuing bank has made a transaction with the shop by paying them an amount. After that, you have made a transaction with the bank by repaying that amount.Now, in these two transactions, one is missing. Where is the transaction, which you have made with the shop by the credit card?If that was a transaction, then the aforesaid two transactions were not necessary.This example proves that credit card is not a form of money.
2. PAYING CREDIT CARD BILLS THROUGH CREDIT CARDS
Have you ever thought of paying your credit card bills with another credit card?This is a critical phenomenon, named as “Revolving Credit”.You pay the bill of one credit card by another. While doing so, you are not actually paying any of the bills.This case is possible only with loans and overdrafts. If credit card has been a form of money, then this revolving would not have been possible. It is only because credit card represents a promise to pay.
So far, we have observed the following points for denoting credit cards not as a form of money:
• Credit cards do not have the properties of money.
• Credit cards represent a promise to pay, not money.
• Credit cards are different form of loans, not money.
As an extension to this topic, we need to understand that the value of money can change while it is still under a transaction and the impact it can have on the two parties of the transaction. So, it is vital to understand the benefits and costs of a deflating currency, so that good arguments can be added to your assignment solution on the fundamental topic of money or currency.