Evolution of Money: Every Thing You Must Know

There are different options regarding the origin and evolution of money. According to some experts, the evolution of money is spontaneous. It has not been discovered through any special effort. Some others say that it was developed out of necessity. But it has been recognized by all that money was present in some form even in very primitive society. It is as old as human being.

Evolution of Money

The course of evolution of money is lengthy one. We can divide the evolutionary stages of money into the followings steps:

Commodity Money

In the early primitive days, various commodities which were important to the eyes of people had been used as money Stones, grain, furs, knives, skins, feathers, boats, ete were selected as money in the ancient times. These things were discarded with the passage of time due to difficulties in making payments and storing in terms of these things. Some other problems like transportation, divisibility, homogeneity, durability also arose.

Metallic Money

In the second stage of evolution of money, some metals were selected as money. In the beginning, uncoined metals were used as money. But it was soon realized that uncoined metals could not serve as good money because of difference in weight and quality. To overcome the complications in exchange, metallic coins were introduced. The sovereign started issuing standard metallic coins with stamp impressed on them. These metallic coins were full- bodied money, ie, their face value was equal to their intrinsic value. Although some other metals were used for making coins but gold and silver were the favorite metallic money.

When gold was selected as standard money metal, the monetary system was named gold standard. On the other hand, when silver coins were used as standard money, the monetary standard was called silver standard. When one metal was used for making coins, it was called nono-metalism. On the other hand, when both gold and silver coins were used simultaneously, we called it be-metallism.

After the gold and silver standards lasted for a number of years, certain difficulties had arisen. The stock of gold and silver reserves had fallen short The Gall-bodied coins were replaced by token coins. Again the inconveniences in handling and transport and depreciation problem made a ground for paper money.

Paper Money

Paper money was a great invention in the history of evolution of money. It was not invented overnight. It has a long historical background.

The goldsmiths in the old days used to keep the valuables and amounts of their clients in their safe. The receipts were issued to these clients for such deposits. Such receipts held the undertaking of the goldsmith to pay the stated amount to the bearer of those receipts. People started using those receipts or certificates as credit instruments for making payments. Those certificates became so popular that people started using those certificates as money. That was the crude shape of bank notes. In the next stage, when those goldsmiths developed their business of keeping deposits and advancing loans in the form of a bank, they started issuing currency notes. In the century, all commercial banks issued currency notes.

Due to no uniformity in currency notes by different commercial banks, state assumed the responsibility of issuing currency notes through its own bank called central bank. In the initial stage, the paper money was fully backed by gold. As time passed on, it was made fractionally backed by gold reserve. Now all the countries of the world are on fiat paper currency standard (A legal fender money which has little intrinsic value).

Bank Money

With the development of banking system, the instruments like cheques, bills of exchange, drafts, travellers cheques are being used as money The use of bank money is becoming popular even in less developed countries due to convenience in payment and no fear of theft.

Plastic Money

It is the most modem form of bank money. Credit cards issued by commercial banks serve the purpose of plastic money. Visa Card, American Express Card, Gold Card are the examples of plastic money. These cards are also called credit cards. In the developed countries these credit cards are widely used by households for making purchase. For further safety of the purchasers, debit cards are also issued by the bank.

Leave a Reply

Your email address will not be published. Required fields are marked *