Evolution of Money is probably
one of the biggest invention in human history. The money was not invented but
it evolved with passage of time according to the changing requirements of
economies.
Evolution of money has passed through following six stages;
Evolution of money has passed through following six stages;
- Barter
- Commodity Money
- Metallic Money
- Paper Money
- Bank money or Credit Money
- Electronic Money
These
stages of evolution of money are discussed as under.
Barter system
Barter is the exchange of
products and services for other products and services. In a barter system,
people do not use money for transactions. The verb ‘to barter’ means to
exchange goods and services for other products and services.
Barter is possible only if the
wants of the people are very few, area of exchange is limited and people are
living a very simple life. There were many difficulties associated with barter
system. So gradually this system of exchange was replaced with money system of
exchange.
The main difficulties found in
barter system:
- Double Coincidence of Wants
- Lack of a Standard Unit of Account
- Impossibility of Subdivision of Goods
- Lack of Information
- Production of Large and Very Costly Goods are not Feasible
Commodity Money
In the earliest period of human
civilization, any commodity that was generally demanded and chosen by common
consent was used as money.
Goods like skins, salt, rice,
wheat, utensils etc. were commonly used as money.
It was difficult to borrow and
lend and more difficult to measure and store the value of goods and services.
Further the volume of trade remained very limited due problem of transportation
of commodity money.
Metallic Money
Commodity money changed into
metallic money. Metals like gold, silver, copper, etc. were used as they could
be easily handled and their quantity can be easily ascertained.
The problem was transportation and
storage of precious metals. This problem was solved by making standardized
coins. In the beginning full bodied coins of gold and silver were introduced
but latter on these were replaced with token coins.
Paper Money
It was found inconvenient as well as dangerous to carry gold and silver coins from place to place. So, invention of paper money marked a very important stage in the development of money.
Bank Money
Emergence of credit money took
place almost side by side with that of paper money. People keep a part of their
cash as deposits with banks, which they can withdraw at their convenience
through cheques. The cheque (known as credit money or bank money), itself, is
not money, but it performs the same functions as money.
Electronic Money
The latest type of money is electronic
money in the form of Credit cards and Debit cards. They aim at removing the
need for carrying cash to make transactions.
