History of money

Money is anything that is commonly accepted by a group of people for the exchange of goods, services, or resources. Every country has its own exchange system of coins and paper money.

There are four stages in money evolution

1.  Bartering system

2. Metallic money

3. Paper money

4. Electronic money

Bartering system

Humans began to grow crops and cattle. This gave birth to “bartering”, where livestock and grain were exchanged for other items which were deemed essential or useful at the time. A barter system is an old method of exchange. This system has been used for centuries and long before E- money was invented. People exchanged services and goods for other services and goods in return. 

Disadvantage of bartering system

·         Lack of double coincidence of wants

     The functioning of the barter system requires a double coincidence of wants on the part of those who want to exchange goods or services. It is necessary for a person who wishes to trade his good or service to find some other person who is not only willing to buy his good or service, but also possesses that good which the former wants. For example, suppose a person possesses a horse and wants to exchange it for a cow. In the barter system he has to find out a person who not only possesses a cow but also wants a horse

·         Lack of a common measure of value

 Another difficulty under the barter system relates to the lack of a common unit in which the value of goods and services should be measured. Even if the two persons who want each other’s goods meet by coincidence, the problem arises as to the proportion in which the two goods should be exchanged. There being no common measure of value, the rate of exchange will be arbitrarily fixed according to the intensity of demand for each other’s goods. Consequently, one party is at a disadvantage in the terms of trade between the two goods.

·         Indivisibility of certain goods

The barter system is based on the exchange of goods with other goods. It is difficult to fix exchange rates for certain goods which are indivisible. Such indivisible goods pose a real problem, under barter. A person may desire a horse and the other a sheep and both may be willing to trade. The former may demand more than four sheep for a horse but the other is not prepared to give five sheep and thus there is no exchange

·         Difficulty in storing value

·         Difficulty in making deferred payments

·         Lack of specialization

2) Metallic money

Metallic money- is “money made of some metal”. With the drawbacks of commodity money and with economic advancement of the people, metals came to be used as money.

This existed during the town economy stage or during the pre-machine age. In the beginning iron, copper, tin, bronze, nickel, lead, gold, silver etc were used. The final choice however was in favor of gold and silver due to their scarcity. Initially pieces of gold and silver of different sizes and shapes were used.

Therefore metals which served as money were gold, silver, and copper etc. In recent times base metals like aluminum etc are used.

There are two type of metallic money

(I)     Full bodied or standard money

Full bodied money is the money whose face value is equal to the real or intrinsic worth of the metal it is made of

         Face value = intrinsic value

(II)    Token money

Token money is the money whose face value is greater than the real or intrinsic worth of the metal it is made of

Face value   >   intrinsic value

Advantages of metallic money

1) It had all the qualities of good money

2) Durable.

3) It had ornamental and decorative value.

4) It could be stored. 

5) Steady demand and supply.

Disadvantages of metallic money

1) Necessary to carry in bulk in case of large transactions.

2) Had to be split up at every stage of exchange.

3) Difficult to assess the value of metals.

4) Not easily potable.

5) The pieces of metal were not uniform in weight, size, shape, value etc and therefore had to be weighed at every stage of exchange.

(3) Paper money

The first mention of the use of paper as money is found in historic Chinese texts. Emperor Chen Tsung (998-1022) awarded rights to issue universal bills of exchange to 16 merchants during his rein. When, however, several of these merchants failed to redeem notes on presentation, the credibility of the money was undermined and the public refused to accept it. In 1023, the emperor rescinded the merchants’ issue rights and established a bureau of exchange within the government charged with issuing circulating paper notes. These are now considered the first true government-issued banknotes. Printing plates made of brass from this period have been found by archaeologists and have been used to print recreated examples of these early banknotes. No original-issue notes of this series are known to have survived.

In 1296, Marco polo, describing his travels in china, made a fleeting reference to paper used as money in the Chinese empire. Europeans found the idea so preposterous and unbelievable, the very credibility of his accounts of having traveled and lived in china were questioned.

The oldest existing original banknote found to date was a fragment discovered in a cave. This banknote was issued by the Chinese emperor Hiao Tsung sometime between 1165 and 1174. On its face, this surviving, rather sophisticated example depicted the amount or number of coins it represented, and is clearly descended from earlier issues, none of which have survived.

(4)Electronic money

Electronic money is the inconclusive term that is used to describe all kind of actions: transactions, money keeping, where computer systems, data storage systems, and computer networks are involved.

The first idea of digital cash was introduced at the end of 20th century by American computer scientist and cryptographer David Chaum. He invented the cryptographic primitive blind signature — the digital signature in which the content of a message is disguised (blinded) before it is signed. In the late 1980s when cypherpunk movement began, his work “untraceable electronic mail, return addresses, and digital pseudonyms” shared people’s vision about the future and laid the groundwork for the field of anonymous communications research.