STAGES IN DEVELOPMENT OF MONEY

STAGES IN DEVELOPMENT OF MONEY

Evolution of Money

Throughout the history of civilization, money has passed through different stages. Historically, the development of money in the present form has evolved through the following stages:

(i) Commodity money

(ii) Convertible paper money

(iii) Fiat money and

(iv) Deposit money. These stages are discussed in brief below.

1. Commodity money. The earliest money which came into use and was accepted in exchange of goods for goods was commodity money. A large number of items such as wheat, cotton, skins, arrows, bows, camels, goats etc. etc. have served as commodity money at different times and places depending upon the stage of .elopment in that country. As time passed on it was found that these commodities were not best suited as general means of making payments.

The main problems with commocf'ty money were that they lacked (a) durability (b) portability (c) divisibility into smaller units (d) uniformity and standardization (e) regularity in supply (f) and had high opportunity cost. So search was made to find and more suitable and convenient mean which is generally acceptable in payments for the goods and services sold. The search led to the discovery of precious metals like copper, silver and gold.

Commodity money is the money that has a value apart from its use as money.

A large number of items has served as commodity money at different times and places. In primitive agricultural stage, domestic animals like cattle, goats, horses, cows, sheep, rice grains etc. were used as money. As time passed on, it was found that these commodities were not best suited as general means of making payments because there were difficulties in storing them. They also lacked the essentials of durability, transportability, divisibility, homogeneity etc. So a search was made to find out a more economic means of making payments. The search led to the discovery of precious metals of gold, silver and copper.

Metallic Money. The next form of commodity money was the use of uncoined metals such as gold, silver, copper as medium of exchange. Such coins had an intrinsic value (value in themselves) which was reflected in their face value. The use of uncoined metals as a medium of exchange created further difficulties. It became difficult for the people to know the weight and value of the piece of bullion at sight, The discovery of mines of gold and silver and their exhaustion caused fluctuations in the supply of money. Transportation and storage of precious metals also became dangerous. Debasement of metal further caused inconvenience and complications in exchange. Further advancement in the evolution of commodity money was the replacement of unstandardized metal ingots with a standardized coinage. The metallic coins had a guaranteed weight of value by a competent authority.they had time these full bodied coins also proved a failure as a good medium of exchange, Coins were clipped, abraded, and melted down. They were also debased. With the discovery or exhaustion of mines, the intrinsic worth of the coins began to depart from their face value. Transportation and storage of metals also became inconvenient and dangerous. Efforts were then made to find out a better unit of account.