History And Evolution Of Money

History and Evolution of Money

 

The history of money dates so far into the history to the times when ancestors used little pebbles to buy things from others. Yes! That happened. But exchange of goods and services started even prior to that in an era named ‘The Barter System’.

 

The Barter System

The Barter System means a system where commodities were exchanged for commodities. In simple goods were exchanged for goods. There was no ‘money’ involved here. People exchanged their excess production with someone else’s excess. The system had many failures such as;
• No double coincidence of wants - this means

that not always did everyone’s wants match. Someone would have excess rice and want some eggs. But the one who has eggs may not want rice. So the coincidence of wants between parties was not always there and this hindered transactions largely.

• No specific unit of value - it was hard to define a value to each product.

• No specific measure of value – there was no way of determining what the exchange rate should be. i.e. how much rice should be exchanged for a bag of rice.

• Difficulties in transporting goods – goods had to be carried around the villages and even to other villages to be exchanged.

• Perishable good like food items could not be stored for long.

Due to such drawbacks people soon realized that exchanging goods for goods wasn’t a very effective system.
Then came the use of medium of exchanges for transactions. As I’ve mentioned above, this could be anything.

 

Commodity Money

This is the second era of the evolution of money, when people shifted from the Barter system to the use of a medium of exchange instead of goods.
In this stage people started using small stones, pebbles from the seashore, rare feathers, tobacco etc for transactions. These are the earliest stages of money. These items had assigned values, but often were not very decisive on their values. At first these items were rare to be found but later on people found more and more

pebbles at the seashores, more feathers from birds, they started growing tobacco, and so the value of these commodities as money ceased. They needed something more consistent and limited in supply.

 

Paper Money

This is the third stage of evolution of money and the earliest stage of the money known to us today.
In early societies goldsmiths were the wealthiest people in the village. When people wanted to buy something, they would take something of value to the goldsmith (not necessarily, someone of wealth would also be sufficient) and keep the goods with the goldsmith and take a note from him signed to the value that he has kept with the goldsmith. Then this paper was valid to do any transaction up to its value mentioned. With time this system too came to pass.

 

Notes and Coins

The first notes and coins that we use today were printed In England by Stockholms Banco in 1661. Since then these notes and coins have evolved in different material, shapes, sizes and values.
Modern coins are minted in silver, copper, nickel etc. And money notes are made out of special paper that withstands heavy use, wear and tear.

 

E-Money / E-Cash

This is the modern plus future of money. Money in the electronic form. Even today with or without our knowledge we use E-money for online purchases, online payments, credit settlements etc.
Paypal, Alertpay, Moneybookers are a few examples of the institutions that facilitate online payments. Besides these specialized institutions, almost all commercial banks provide online payment facilities nowadays.