Barter.

In the beginning of civilization the needs of people were very limited and therefore they used
to Exchange their goods with other peoples 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.

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 precious
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 days 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.

(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.

https://www.slideshare.net/Hasnain1991/evolution-of-money
https://www.slideshare.net/banholzerm/history-of-money-8964734

Animal Money : The agricultural communities in the primitive society used domestic animals as money.
Cattle were considered the common instrument of exchange. Cattle were used to measure the value of
different things to be exchanged. In ancient India, according to Artha Veda, Go-Dhan (cow wealth) was
accepted as a form of money. There is evidence to suggest that many things like beads, shells, eggs,
ivory, nails, pigs, yarn etc. were used as money from time to time. For instance, Chinese character for
money resembles a 'Cowerieshell indicating use of cowries as money.

(ii) Commodity Money : From the beginning of human civilisation various types of commodities have
been used as money. A number of commodities like bows, arrows, animal skins, shells, precious stones,
rice, tea, etc., were used as money. Different factors like the location of the community, climate of the
region, cultural and economic development of the society etc. influence the selection of a commodity to
serve as money.

Money, one of the earliest and most significant inventions of civilization, is essential to the development
of trade. Without it there is only barter, a relationship between two people each of whom has something
which the other wants.

Money (which everybody wants) provides an intermediary substance, enabling the seller to choose
when and where he wishes to become a buyer.
.

The most often quoted example of primitive money is shells - in Africa cowries and wampum in America.
The small cowrie shell, deriving from the Maldive Islands in the Indian Ocean, is a treasured item in the
civilizations of China and India from very early times. From India these attractive objects are carried
along the trade routes to Africa. Similarly the American Indians use a small white cylindrical shell for
ceremonial gifts, embroidered on to decorated belts or other ornaments. Europeans give the name
'wampum' to these precious items.

Both wampum and cowries eventually become a market currency, in the conventional sense, but only
after the arrival of Europeans.

The earliest currency used in commercial transactions appears in Egypt and Mesopotamia by the third
millennium BC. It consists of gold bars which need to be weighed to establish their value each time they
are exchanged. Later they are supplemented by gold rings for smaller sums. In about 2500 BC an
extensive trade, at Ebla in modern Syria, is based on currency of this kind in silver and gold.
Gold rings and ornaments, which can be worn for safe keeping as well as display, approach the ideal of a
portable currency. Many poor women in India today still wear their limited wealth in this way, even
when working in the fields or on the roads.

Safe in the temple: 18th century BC

Wealth compressed into the convenient form of gold brings one disadvantage. Unless well hidden or
protected, it is easily stolen.

In early civilizations a temple is considered the safest refuge; it is a solid building, constantly attended,
with a sacred character which itself may deter thieves. In Egypt and Mesopotamia gold is deposited in
temples for safe-keeping. But it lies idle there, while others in the trading community or in government
have desperate need of it. In Babylon at the time of Hammurabi, in the 18th century BC, there are
records of loans made by the priests of the temple. The concept of banking has arrived.

Metallic Money : Discovery of precious metals and the the spread of civilisation and trade relations by
land and sea, led metalic money to take place of commodity money. Gold and silver were the metals
mostly used to form metallic money. Because of their scarcity, usefulness and attractiveness, gold and
silver were regarded as natural money. They were choosen because of their convenience, storability, high
value density and easy portability
The first mint: 7th century BC

The earliest known coins in the western world come from the city of Ephesus in Ionia (in western Turkey)
in about 650 BC. The metal used is electrum, a natural alloy of gold and silver found locally. The coins are
bean shaped and are struck on one side with a distinguishing mark, such as the image of a lion. The
underlying purpose is to ensure a stable value in this variable metal of exchange, previously traded by
weight alone. The state mint adds silver to the alloy to guarantee a mix of 55% gold to 45% silver.

A century later Croesus, king of neighbouring Lydia and famous for his wealth, becomes the first ruler to
mint coins in pure gold and pure silver. Like the earlier coins, his are still stamped on just one side. They
show the facing heads of a lion and a bull.

Greek cities, to the west of Lydia, and the great Persian empire to the east are quick to adopt the useful
new technique of metal currency. By the end of the 6th century coinage is common throughout the
region.

In distant Rome, as yet more backward, unworked lumps of bronze are now in use as currency. Their
value is expressed in terms of sheep and cattle, a concept reflected still in the word 'pecuniary' in
languages influenced by Latin. The Roman word for money, pecunia, derives from pecus, meaning cattle.
Bronze coins in China: 7th - 3rd century BC

By one of the strange coincidences of history, the idea of coinage occurs at the same period in two far
separated parts of the world. While the craftsmen of Ephesus are striking coins in Asia Minor, the skilled
casters of China are making coins by a different method - pouring molten bronze into moulds.

The results look very different. The Chinese bronze-casters, accustomed to turning out elaborate shapes
for ritual vessels, incline to something more complex than a simple round coin.

Two shapes in particular are characteristic of the first Chinese coins. Coins of one type resemble the
metal part of a spade, while others are like a knife blade with a handle. In both cases the flat surfaces are
decorated with Chinese characters. These designs are copied in nearly all the states of China during the
later centuries of the Zhou dynasty.

Shi Huangdi, the first emperor of China, introduces the more rational round coin in the late 3rd century
BC. Still cast in bronze rather than struck, they have a square hole in the middle - a shape characteristic
of far eastern coins for the next two millennia.
Greek and Roman financiers: from the 4th century BC

Banking activities in Greece are more varied and sophisticated than in any previous society. Private
entrepreneurs, as well as temples and public bodies, now undertake financial transactions. They take
deposits, make loans, change money from one currency to another and test coins for weight and purity.

They even engage in book transactions. Moneylenders can be found who will accept payment in one
Greek city and arrange for credit in another, avoiding the need for the customer to transport or transfer
large numbers of coins.

Rome, with its genius for administration, adopts and regularizes the banking practices of Greece. By the
2nd century AD a debt can officially be discharged by paying the appropriate sum into a bank, and public
notaries are appointed to register such transactions.

The collapse of trade after the fall of the Roman empire makes bankers less necessary than before, and
their demise is hastened by the hostility of the Christian church to the charging of interest. Usury comes
to seem morally offensive. One anonymous medieval author declares vividly that 'a usurer is a bawd to
his own money bags, taking a fee that they may engender together'.
Paper Money : The Chinese used one-fool square pieces of deer skin as money and later became the first
people to use paper money. One of the reasons for issue of paper currency was shortage of copper for
making coins. Europe learnt of paper money two hundred years later than Marcopolo visited China.
Initially, the merchants used to carry paper receipts against metallic money due to the safety problem of
carrying costlier metals like gold and silver from one place to another. With the passage of time, the
scarcity of metals resulted in the introduction of convertible paper currency by the state authorities;
paper money was convertible into metals.

Origins of today's currencies: 7th - 16th century

Many of the units of currency in use today derive from Roman originals, and more specifically from
versions of the Roman coins minted during the Middle Ages. The stable currency of the Byzantine empire
is a gold coin, the solidus, linked in later history with the various forms of European shilling. From about
690 it is joined as a hard currency by another gold coin, the dinar (from the Latin denarius), first minted
by the caliph Abd-al-Malik in Damascus in about 690.

In the following century the Frankish king Pepin III introduces a silver denarius, or penny, which becomes
the standard medieval coin in western Europe.
Later kings of the Carolingian dynasty standardize the penny, decreeing that 240 are to be struck from a
pound of silver. It is subsequently established that twelve silver pennies are to be considered the
equivalent of the Byzantine gold solidus or shilling.

Thus there evolves a monetary scale of 1:12:20 (penny:shilling:pound) which prevails in much of Europe
until the decimalizing innovations of the French Revolution, and in Britain until 1971. At first the silver
penny is the only local currency of the three. The shilling is a Byzantine gold coin used as a yardstick of
value, while the pound is a measure of weight. Shillings and pounds later become European coins in
their own right.

Subsequent coins of lasting resonance are the Venetian ducat, first minted in 1284, and Florence's
famous fiorino d'oro ('golden florin') launched in 1252. Bearing the city's own name, this widely
respected coin becomes a factor in Florence's banking success.

One of the most resonant names among modern currencies, that of the dollar, derives from a somewhat
later coin - the large silver Joachimsthaler, widely known as the thaler, which is minted from 1517 in
Bohemia and is named from the silver mines at Joachimsthal.

Paper money in China: 10th - 15th century

Paper money is first experimented with in China in about910, during the Five Dynasties period. It is a
familiar currency by the end of the century under the Song dynasty. Another three centuries later it is
one of the things about China which most astonishes Marco Polo (see Bank notes in China).

He describes in great detail how the notes are authenticated, and then unwittingly touches on the
danger lurking within the delightful freedom to print money. He says that the emperor of China makes so
many notes each year that he could buy the whole treasure of the world, 'though it costs him nothing'.
By the early 15th century inflation has become such a problem that paper currency is abolished in the
Ming empire.

Bank notes: 1661-1821

Paper currency makes its first appearance in Europe in the 17th century. Sweden can claim the priority
(as also, a few years later, in the first national bank).

In 1656 Johan Palmstruch establishes the Stockholm Banco. It is a private bank but it has strong links
with the state (half its profits are payable to the royal exchequer). In 1661, in consultation with the
government, Palmstruch issues credit notes which can be exchanged, on presentation to his bank, for a
stated number of silver coins.
Palmstruch's notes (the earliest to survive dates from a 1666 issue) are impressive-looking pieces of
printed paper with eight hand-written signatures on each. If enough people trust them, these notes are
genuine currency; they can be used to purchase goods in the market place if each holder of a note
remains confident that he can indeed exchange it for conventional coins at the bank.

Predictably, the curse of paper money sinks the project. Palmstruch issues more notes than his bank can
afford to redeem with silver. By 1667 he is in disgrace, facing a death penalty (commuted to
imprisonment) for fraud.

Another half century passes before the next bank notes are issued in Europe, again by a far-sighted
financier whose schemes come to naught. John Law, founder of the Banque Gnrale in Paris in 1716
(and later of the ill-fated Mississippi scheme) issues bank notes from January 1719. Public confidence in
the system is inevitably shaken when a government decree, in May 1720, halves the value of this paper
currency.

Throughout the commercially energetic 18th century there are frequent further experiments with bank
notes - deriving from a recognized need to expand the currency supply beyond the availability of
precious metals.
Gradually public confidence in these pieces of paper increases, particularly when they are issued by
national banks with the backing of government reserves. In these circumstances it even becomes
acceptable that a government should impose a temporary ban on the right of the holder of a note to
exchange it for silver. This limitation is successfully imposed in Britain during the Napoleonic wars. The
so-called Restriction Period lasts from 1797 to 1821.

With governments issuing the bank notes, the inherent danger is no longer bankruptcy but inflation.
When the Restriction Period ends, in 1821, the British government takes the precaution of introducing
the gold standard.

Minting shells: 16th - 18th century

The age of European exploration, from the 16th century, leads to interesting encounters between traders
accustomed to a cash economy and traditional tribes valuing shells (cowries in Africa, wampum in
America) as precious objects used primarily for ceremonial purposes. The Europeans, eager to trade in
regions where there is no established coinage, make use of the value attached to these shells - and in
doing so transform them, for a while, into a conventional currency.

In both regions the result is massive inflation. The Europeans, finding they have the power to flood the
market with shells, inevitably debase the currency.
In America the colonists in the 18th century go to the length of inventing a machine which can
manufacture white shell beads accepted as wampum by their Indian trading partners.

The African market is even more easily flooded with shell currency. Cowries, previously brought with
difficulty to India and then overland through Africa, are now imported in shiploads by Dutch and British
ships calling at the Maldives on their way back from the far east. They become a standard part of the
price for slaves in west Africa. It has been calculated that during the 18th century more than 10,000 tons
of these shells are brought round the Cape. By 1770 the price of a single slave is about 150,000 cowries.