1. Evolution of Money Chapter # 2

2. Evolution of Money. In the earlier stages of human civilization, to satisfy man needs, barter system took place. In the earlier stages of human civilization, to satisfy man needs, barter system took place. After that with the passage of time man used so many other ways of satisfying its needs and wants which led to various stages of use of money as a medium of exchange. After that with the passage of time man used so many other ways of satisfying its needs and wants which led to various stages of use of money as a medium of exchange. Like Commodity money, Metallic money, Paper money, Credit money, Electronic money etc. Like Commodity money, Metallic money, Paper money, Credit money, Electronic money etc. All such stages of money are used as a medium of exchange to solve the difficulties of barter economic system. All such stages of money are used as a medium of exchange to solve the difficulties of barter economic system.

3. Stages in the evolution of Money The money came into being from different stages in different time periods. Following are the different kinds or stages of money… The money came into being from different stages in different time periods. Following are the different kinds or stages of money… Commodity money Commodity money Metallic money Metallic money Paper money Paper money Credit money Credit money Electronic money Electronic money

4. Commodity money A large number of commodities or items has served as commodity money at different time and places. A large number of commodities or items has served as commodity money at different time and places. Such as, cattle like goats, horses, cows, sheep, etc and other precious items were used as money. Such as, cattle like goats, horses, cows, sheep, etc and other precious items were used as money. There were some problems in storing, transportability, durability and divisibility of such items as money, which led to an other stage of money in terms of some precious metals like gold, silver and copper which is known as metallic money. There were some problems in storing, transportability, durability and divisibility of such items as money, which led to an other stage of money in terms of some precious metals like gold, silver and copper which is known as metallic money.

5. Continue… For Example: Romans used cattle and salt as money at different times. Romans used cattle and salt as money at different times. The Mongolians used skins as money. The Mongolians used skins as money.

6. Metallic Money Metallic money stage has been divided in three stages; Metallic money stage has been divided in three stages; Cheap Metal Cheap Metal Precious Metal Precious Metal Coins Coins Cheap Metal Cheap Metal Cheap metals like copper and tin were used as standard of value. But there was need of standard weight and purity of those metal, so a stamp was used to provide guarantee about the weight and purity. Cheap metals like copper and tin were used as standard of value. But there was need of standard weight and purity of those metal, so a stamp was used to provide guarantee about the weight and purity. Precious Metal Precious Metal The next form of money was the use of some precious metals such as gold, silver as a medium of exchange. The ratio of one metal to other was declared by the state. The age of precious metals has been ended after two world wars. The next form of money was the use of some precious metals such as gold, silver as a medium of exchange. The ratio of one metal to other was declared by the state. The age of precious metals has been ended after two world wars.

7. Coins Coins Accordingly metal was made into coins of pre- determined (pre-decided) weight. Accordingly metal was made into coins of pre- determined (pre-decided) weight. This innovation is attributed to King Midas of Lydia in the 8 th Century B.C. This innovation is attributed to King Midas of Lydia in the 8 th Century B.C. But some economics says that gold coins were in use in India many centuries earlier than Lydia. But some economics says that gold coins were in use in India many centuries earlier than Lydia. Some economists says that coins were minted in temples more than 2500 years B.C. The standard of weight and fineness was necessary. Some economists says that coins were minted in temples more than 2500 years B.C. The standard of weight and fineness was necessary. As a metal there was no guarantee of purity and weight of metal as this defect was removed by coins. As a metal there was no guarantee of purity and weight of metal as this defect was removed by coins.

8. Some coins had an intrinsic value ( value in themselves ), which was reflected in their face value these coins were also known as full bodied coins. Some coins had an intrinsic value ( value in themselves ), which was reflected in their face value these coins were also known as full bodied coins. As the price of gold began to rise, then Government mix copper and silver in gold coins because the gold was becoming scarce and expansive with the passage of time. As the price of gold began to rise, then Government mix copper and silver in gold coins because the gold was becoming scarce and expansive with the passage of time. But again there were some problems in such kind of money which led to establishment of paper money. But again there were some problems in such kind of money which led to establishment of paper money. Types of Coins; Types of Coins; Full bodied coins (face value is equal to the intrinsic value of coin). Full bodied coins (face value is equal to the intrinsic value of coin). Token coins (face value is greater than intrinsic value). Token coins (face value is greater than intrinsic value).

9. Paper Money After metallic money the next development in the payment and transaction system was paper money which includes currency notes issued by the central bank of country. After metallic money the next development in the payment and transaction system was paper money which includes currency notes issued by the central bank of country. Some Economist believe that the paper money has been originated from China, as the China was the inventor of paper in 9 th century. Some Economist believe that the paper money has been originated from China, as the China was the inventor of paper in 9 th century. From the middle of 8 th century to the middle of 17 th century, the Chinese emperor and the Mongols made an extensive use of paper money. From the middle of 8 th century to the middle of 17 th century, the Chinese emperor and the Mongols made an extensive use of paper money. Iran also made some unsuccessful use of paper money in their economy in the middle of 13 th century. Iran also made some unsuccessful use of paper money in their economy in the middle of 13 th century. But in the late 17 th century convertible paper money was issued on large scale by a wide variety of institutions by almost all the developed countries of the world. But in the late 17 th century convertible paper money was issued on large scale by a wide variety of institutions by almost all the developed countries of the world.

10. But some Economics says that the origin of paper money has been started with Goldsmith and the people at that time was keeping their gold and silver for the safe custody with them. But some Economics says that the origin of paper money has been started with Goldsmith and the people at that time was keeping their gold and silver for the safe custody with them. For that Goldsmith was issuing a receipt to them of the equivalent value of gold and silver which was then used as a medium of exchange. For that Goldsmith was issuing a receipt to them of the equivalent value of gold and silver which was then used as a medium of exchange. Later on this practice brings the idea of paper currency in the mind of government. Later on this practice brings the idea of paper currency in the mind of government.

11. Paper currency has the advantage that it is lighter than coins. Paper currency is legal tender by the state. Paper currency has the advantage that it is lighter than coins. Paper currency is legal tender by the state. The drawback of paper currency is that payment in large amount is difficult to count and it is also difficult to carry a huge amount of paper currency from one place to another place, such drawbacks are overcame by the use of credit or bank money. The drawback of paper currency is that payment in large amount is difficult to count and it is also difficult to carry a huge amount of paper currency from one place to another place, such drawbacks are overcame by the use of credit or bank money.

12. Credit or Bank Money With the passage of time banking system is introduced in the economic sphere of life which brought about an easier and modern system of payment in transactions in terms of credit money. With the passage of time banking system is introduced in the economic sphere of life which brought about an easier and modern system of payment in transactions in terms of credit money. “Now a days the transactions are made through the payment and receipts of bank cheques, draft and bill of exchange etc, all such means for making payments and receipts in transactions is known as credit or bank money.” “Now a days the transactions are made through the payment and receipts of bank cheques, draft and bill of exchange etc, all such means for making payments and receipts in transactions is known as credit or bank money.” These instruments were accepted on the basis of actual money deposited in the bank. These instruments were accepted on the basis of actual money deposited in the bank. Check is not a legal tender because it by itself is not money it can not be enforced in payment of debt. Check is not a legal tender because it by itself is not money it can not be enforced in payment of debt. Although in most of the developed countries most of the businesses done through credit money. Although in most of the developed countries most of the businesses done through credit money.

13. Electronic Money With the development of computers and advanced communication technology, transactions became more easier. With the development of computers and advanced communication technology, transactions became more easier. Through advanced computerized banking system new ways of payments and receipts for transactions are introduced such as, ATM cards, credit cards. Such means of computerized transactions are known as electronic or plastic money. Through advanced computerized banking system new ways of payments and receipts for transactions are introduced such as, ATM cards, credit cards. Such means of computerized transactions are known as electronic or plastic money.

14. End of Chapter