Types, Advantages and Disadvantages of Paper Money

Paper money is the most advanced type of money. It fulfils almost all the qualities of good money, because it is economical, easily recognizable, portable and storable. It can be classified into

  1. representative
  2. convertible
  3. fiat money

Now a days majority of paper currency is fiat money. Different authors have defined paper profit the following words.

In words of F.Perry:

Paper money is documents representing money, such as bank note, promissory notes, bills of exchange or postal orders.

In words of M.Greener:

Paper money means documents with a price stated on them but having no value in them.

Merits of paper money

Cheap and economical:

Normally paper money is significantly simpler to issue. Practically it cost nothing to government. Printing of paper currency is requires certain special types of paper, ink, and printing technology. These exact things no doubt are costly but overall printing cost is fairly low.


Paper money is convenient to transfer and carry. It may be easily kept in pocket. Further it can be readily changed into cheques, drafts, etc.


The style of paper money is very hard to copy. Further special kind of paper and ink is utilized in paper money that means it is quite impossible to copy. Even when it copied by some fake means then it could be checked by electronic machines.

Homogeneous (Uniform quality):

The paper money has another advantage so it has uniform quality and the holder doesn’t bother for possession of new or old money.

Elastic supply:

Paper money because elasticity is very helpful for government. Way to obtain money could be increased or decreased in accordance with the needs of the economy. Like at a peak degree of business activity the demand of money increases and the monetary authorities can quickly issue paper money to fulfill the demand of money.

Benefit of unlimited legal tender:

Paper money is unlimited tender i.e a variety of payment or of debt could be paid in it. It works extremely well to discharge a myriad of business obligations.

Precious metals saving:

Utilization of paper money results the saving of precious metals of the country. The metals works extremely well for other useful purposes.

Simple counting:

Paper money will be a lot simpler to count than metallic money. The counting of considerable amounts in metal form is inconvenient and difficult. On the other hand counting of paper money is straightforward, convenient and requires little time.


The paper money is easily recognizable. There’s no inconvenience of testing the exactness of the amount of money material.

Useful in emergency:

The paper money works extremely well in emergency life war and floods. The united states government can meet up with the expenses by printing notes in shorter time. But metallic money takes long period of time for mining, refining and minting the metals.

Stable in value:

The metallic money depreciates because of wear and tear. The paper money really helps to regulate such loss. The depreciation means decline in the worth of coins because of usage.

Easily portable:

Paper money is portable i.e. it may quickly be transferred in one place to some other in comparison to metallic money. The price tag on transferring paper money is very low and it might be transferred really limited time period.

Demerits of paper money

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