Evolution of Money;5 Stages And History You Must Know

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.It is not a result of brain storming of some economist rather there is a long process of evolution since start of civilization to this modern complicated credit system.Man has always had the need to give value to things and exchange them. This is how bartering arose, then money and finally being able to save and invest that money.

6 Stages of History And Evolution of Money

It is generally believed that evolution of money has passed through following six stages.

Money, in its various forms, has been a cornerstone of human civilization for millennia. From bartering with livestock to tapping our phones for a digital payment, the way we exchange value has morphed throughout history. Let’s take a brief journey through the evolution of money.

6 Stages of History And Evolution of Money

  • Barter
  • Commodity Money
  • Metallic Money
  • Paper Money
  • Credit Money
  •  Electronic Money

These stages of evolution of money are discussed as under.

Evolution of Money

1 Barter.

In the beginning of civilization the needs of people were very limited and therefore they used to Exchange their goods with other people’s goods or Service. Such a system of exchange where goods and services are directly exchanged for each other without the use of money is called barter system. 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.

2 Commodity Money:

Money is in fact discovered to remove Difficulties of barter. In fact money has evolved in response to the urgent needs of the various stages of economic growth. In the beginning of civilization goats, animal-hides, axe-heads, knives, arrows, slaves etc., have been used as money in different

Perform the basic functions of money. It was difficult to borrow and lend and it was 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.

In 2200 B.C., getting fed up with barter system, the people began to use different goods as means of exchange like skins of animals, sheep, shells, goats, bows and arrows etc. These means of exchange also had most of the defects of barter system. Therefore, this system could not prevail for long time and the people found metallic money.

3 Metallic Money.

Money made of metal is called metallic money. In the beginning the pieces of gold and silver were used as money but it did not solve the complicated problems of exchange. It was very difficult to I measure the value with these jaw pieces of metal. Another problem was transportation and storage of storage 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. Now a day’s different alloy are being used for minting of coins.

The metallic coins have a specific weight and shape. Coins are only used for smaller retail payments because it is difficult to count, transport and store them.

Metallic money is the right solution of most of the difficulties of barter system and is the real beginning of money. In 500 B.C., the people used gold and silver as means of exchange for sale or purchase. Then standard coins of gold and silver came into use.

Metallic money solved most of the difficulties of barter system but some obstacles remained unturned. For example, transfer of metal coins was difficult, risky and costly. Likewise, storage of metal coins was difficult, risky and expensive. Due to these difficulties, the use of metal coins was replaced with that of paper money.

(4) Paper Money

In the third stage of the evolution of money paper money was discovered. It is believed that the start of paper money was issuance and acceptance of receipts of gold smiths who were acting as money lender in old Iraq.

These goldsmiths were rich, respectable and were men of repute. They used to keep the valuables of the people in the safe rooms and issued receipts as a proof for the goods stored. These certificates became a convenient credit Instruments and were freely used for borrowing and lending and making payment. In the 19th century commercial banks started issuing their own notes of different colors and denominations.

It created confusion and were not generally acceptable. Central bank removed this confusion by taking over the power of issuing bank notes. In the beginning the paper money was fully convertible into full bodied gold coins. During the period between the two world wars, it became difficult to convert the paper money into gold. Now almost all the countries issue currencies according to the monetary requirements of the economy and government provides securities for issuance of currency.

In the beginning, in order to transfer money safely, economically and conveniently, the people deposited their metallic coins to trustworthy persons and got receipts in this regard. These receipts could be used for the purchase of goods on other places. Since these trustworthy people had

good reputation so that receipts were accepted as money. Thus, these receipts were primal paper money. Afterwards, when the use of these receipts spread then government took the responsibilities of the work of these trustworthy people.In 1700 A.D., government organized this work and started issuing currency notes. These notes were declared to be accepted legally. In this way, paper money prevailed.

The use of paper money is easy and economical. Its storage and transfer are easy and cheap. The prices can be stablised by keeping adequate control over its issue and this can also control many economic problems.

5 Credit Money:

In the present day modern economies or bank money is used for making personal business payments. In the developed countries, transactions are taking place with the help of deposits or checking accounts with paper money. Demand deposits or money sited in current accounts are easily convertible cash, therefore they are convenient and safe.The 20th century saw the invention of credit cards. Initially introduced as a way for companies to offer credit to their regular customers, credit cards eventually became a widespread method of payment.

In the present age, credit money i.e., cheque, pay order, draft, traveller cheque and credit card etc. in addition to paper money is also used in order to make business dealings more economical, easier and safer. The acceptance of credit money (bank money) is not legally compulsory. But its use is increasing day by day due to convenience, economy and safety.

6 Electronic Money

TODAY THE invention of computer and its application, the form and shape of business are changing fast. The concept OF commerce is gaining vast popularity. The mode payment is being transformed from cash or quest to electronic transaction from one account another. This form of electronic payment is early referred to as electronic money.

There are many problems in this type of transactions, but it aiming popularity day by day. i evolution of money has not come to an end,  it will, never come to an end.. As economies of the world are changing features and shapes, money is also changing its m with the due course of time. Globalization of the anomies and expansion of e-commerce has given new dimension to modes of payment and has angled the nature and features of money.

7.Central Bank Digital Currencies (CBDCs): Given the rise of cryptocurrencies, several central banks worldwide are exploring or have already issued their own digital currencies. CBDCs combine the benefits of digital currencies with the stability and regulation of traditional fiat.

Evolution of Money

Conclusion: The journey of money mirrors the evolution of human civilization. As we move into an increasingly digital age, our understanding and usage of money will continue to change, adapting to the challenges and demands of the times. However, the fundamental principle remains: money is, and will continue to be, a medium to represent and exchange value.

by Abdullah Sam
I’m a teacher, researcher and writer. I write about study subjects to improve the learning of college and university students. I write top Quality study notes Mostly, Tech, Games, Education, And Solutions/Tips and Tricks. I am a person who helps students to acquire knowledge, competence or virtue.

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