Professional Documents
Culture Documents
BANKING LAW
SUBMITTED BY
Y. LOKESWARI
1220330101022
SUBMITTED TO
ASTLE SINGH
ASSISTANT PROFESSOR
The completion of this project is only possible by the kind support and guidance of many
individuals. I would like to express my sincere thanks to all of them.
Firstly, I would express my respect and thanks to my professor ASTLE SIR for his guidance
and constant supervision as well as for providing proper information regarding the project
and also for his support in completing this project.
Secondly, I would also thank my classmates who helped me in developing and finalizing this
project with their abilities and also helped me in completing the project within the limited
time frame.
DECLARATION
The matter embodied in this project report has not been submitted to any other University or
Institution for the award of degree. This project is my original work and it has not been
presented earlier in any manner. This information is purely academic interest.
Table of Contents:
1. Abstract………………………………………………………………………….…………01
2. Keywords…………………………………………………………………….……………01
3. Introduction…………………………………………………………………………..……02
i. Barter System……………………………………………….………………………..…03
ii. Collectibles………………………………………………………….………………….04
v. Fiat Currency…………………………………….……………………………………..07
8. Conclusion……………………………………………...………………………………….10
9. Bibliography……………………………………………………...………………………..11
Emergence of Currency as a medium of Exchange- The History
Abstract:
Taking a step back and comprehending the beginnings and development of money is essential
to understanding the creation of virtual and cryptocurrencies. Despite being a man-made idea,
money plays a crucial role in people's lives. It should be highlighted that it has evolved over
time to take on various shapes and has been utilised to symbolise wealth as well as to pay for
necessities for survival. The underlying idea that people have utilised money for a long time.
The evolution of money has paralleled the advancement of technology. A society comes to a
consensus on a form of money that best meets its needs; there are no laws that specify what
constitutes the ideal form of money. A society's chosen form of money is influenced by a
variety of elements, including the nature of the available resources and technology, the size of
the trading community, and the preferred methods of trade.
1
Introduction:
The concept of currency as a medium of exchange has a rich and diverse history that spans
thousands of years. The evolution of currency is deeply intertwined with the development of
human civilization, trade, and economic systems. In this comprehensive exploration, we will
delve into the various stages of currency emergence, tracing its roots from ancient barter
systems to the sophisticated monetary systems of the modern era.
What is money:
Money often has no intrinsic value, instead, money is an object with a value places on it,
allowing for the trade of goods and services. Some mental coins, have actual value in terms
of the materials used. But, these currencies derive their value from the faith of the people in
their society has put in them. Throughout the evolution of the money, currencies have taken
several different forms.
What is Currency:
We require a common denominator to value the commodities and services while exchanging
them. A currency serves as an intermediary and is required in order to function as a common
denominator1.
Goods and services can be exchanged for currency. Currency is defined as money that is
issued by a government, accepted at face value, and comes in the form of coins or paper.
Goods and services were directly traded for other products and services when bartering took
place. In the current world, bartering has been superseded by currency as the main method of
trading products and services.
A Medium of exchange is an intermediary instrument used to facilitate the sale and purchase
of the goods and services between two individuals and more 2. For a system to function as a
medium of exchange, it must represent a standard of value. Further, all parties to the
transaction must accept that standard.
1
What is Currency? Definition of Currency, Currency Meaning, THE ECONOMIC TIMES,
https://economictimes.indiatimes.com/definition/currency (last visited Mar 13, 2024).
2
Medium of Exchange: Definition, How It Works, and Example, INVESTOPEDIA,
https://www.investopedia.com/terms/m/mediumofexchange.asp (last visited Mar 5, 2024).
2
Currency is the medium of exchange in the modern economics. Gold has served as a medium
of exchange throughout history.
1. Barter System:
A Barter system is a system of exchanging goods and services for other goods and services.
This method preceded the introduction of money by centuries and has been in use.
Individuals began trading products and services for one another's goods and services3.
Typically, bartering takes place directly between two people, although it can also happen
multilaterally through a trade exchange. Bartering is uncommon in developed nations unless
it is done in conjunction with the national standard monetary system, and even then, it is only
used in specific circumstances.
A barter system is frequently developed during financial crises as a way to keep a nation
running and to continue selling products and services. This could happen in the event that
there is no physical money accessible, hyperinflation or a deflationary spiral occurs in a
nation.
Advantages:
1. A barter economy and the ability to barter are beneficial for a variety of reasons.
2. In certain situations, commodities or services may be offered but cash is not.
3. People can use what they currently have to barter for what they need. For instance, if
someone wants to build an addition to their house but doesn't have the money to buy
the lumber, they might be able to use the barter system to get what they need. They
could trade furnishings they don't need for the lumber.
4. Naturally, both sides must negotiate such an agreement. It is a reciprocal, win-win
agreement that doesn't call for the transfer of money or other resource.
Disadvantages:
3
Barter System - Definition, What is Barter System, Advantages of Barter System, and Latest News,
CLEARTAX, https://cleartax.in/glossary/barter-system (last visited Mar 13, 2024).
4
Id.
3
1. The inefficiency of the barter system is a problem. The first possible issue is that the
person in need of timber might not be able to find a lumber supplier who also needs
something that the lumber seeker can provide.
2. The second possible issue arises while trying to ensure equitable trades. A monetary
economy facilitates easier management of the flow of goods and services.
2. Collectibles:
People used to gather certain artefacts as a means of exchange for a very long time in order to
get around the trade to overcome the barriers by barter systems. Often referred to as
"commodity money," this term refers to the exchange of other commodities and/or services
for a commonly consumed commodity or rare item that was in high demand.
Since many of these goods or collections took a long time and a lot of skill to make, they had
a certain scarcity that made them valuable to particular social groups. Because of their
perceived worth, generations started passing these down, and they were among the earliest
tangible kinds of money5.
Collectibles were helpful because they addressed the problem of two groups of individuals
having similar desires at the same time. People might get these commodities or collections by
selling items, giving services, or investing their time and effort.
The reasons behind the decline in the value of collectables (beads, metals, shells, etc.) are
issues related to scalability, authenticity, and debasement. Countries started to copy and
manufacture these products in large quantities, which eventually caused the supply to become
oversupplied and caused the objects' value to decline. The original physical form of money
was called commodity money. Commodity money is commonly used to purchase salt, shells,
pearls, and other expensive commodities that are difficult to duplicate. Finding someone who
wished to engage in a one-for-one barter was no longer necessary with the advent of
commodity money. Alternatively, they may trade commodity money for an item or service,
and the person who was paid could then use the commodity money they had been given for
other purchases.
Precious metals like gold and silver were used as commodities by people as societies grew
more complex. Compared to earlier commodity money, these precious metals were more
difficult to obtain and make. In addition, they were robust and, depending on the
5
Brad Hanson, The History of Money: How Currency Evolved from Pelts to Paper, INTUIT CREDIT KARMA
(2023), https://www.creditkarma.com/money/i/history-of-money (last visited Mar 5, 2024).
4
characteristics of the metal, had intrinsic worth. The minting of coins finally replaced the use
of precious metals as commodity money6.
Metal money evolved from commodity money as human civilization advanced. In the past, it
was simple to handle and determine the quantity of metals like gold, silver, and copper 7.
Thus, for the most part of recorded history, metallic money served as the primary medium of
exchange. Several isolated cultures have agreed to use various metals as money throughout
history. mostly as a result of the metal's distinctive look, rarity, robustness, and divisibility.
More valuable metals, such gold and silver, were acquired at a greater price than less valuable
metals, like copper. As a result, this characteristic of gold and silver made them suitable for
use as scalable stores of value over time.
Originally, money was issued in the shape of broken pieces of gold and silver, with their
value determined by their weight. However, uniformity became necessary as economic
activity increased. The first standardised weighted coins were made by the kingdom of Lydia,
which helped to improve trade efficiency by removing the need for merchants to weigh every
payment and enabling them to identify different coin kinds and their respective values.
But the elites soon learned they could syphon off riches from society by gradually lowering
the quantity of precious metals in the coins. This was made possible by their ability to debase
the money through "coin clipping" and increase the number of coins in circulation.
Herodotus, the Greek historian, states that in the eighth century BC (BCE), King Midas of
Lydia invented the metal currency. However, India used gold coinage for a longer period of
time than Lydia did8.
The ancient Chinese, Indians, and Lydians of the Middle East are the first people in history to
have struck coins. In the sixth century BC (BCE), the Mahajanpadas, often referred to as
Puranas, Karshapanas, or Panas, struck the first Indian coins.
6
The history of money, https://www.cityindex.com/en-uk/news-and-analysis/history-of-money/ (last visited Mar
5, 2024).
7
Evolution of money — lesson. Social Science, Class 8.,
https://www.yaclass.in/p/social-science/class-8/money-savings-and-investments-9317/re-65bc59cd-8ccf-4f63-
89f9-7e33fca4e2e3 (last visited Mar 13, 2024).
8
(25) The Origin and Evolution of Money | LinkedIn, https://www.linkedin.com/pulse/origin-evolution-money-
moore-johannesburg/ (last visited Mar 5, 2024).
5
Punch Marked Coins were invented by the Mauryas and were minted in lead, silver, or gold.
However, the Greek tradition of etching portraits on coins was brought by the Indo-Greek
Kushan kings. By the 12th century AD (CE), Islamic calligraphy had taken the place of
Indian kings' regal designs thanks to the Turkish sultans of Delhi. The lower-value coin
known as Jittals and the gold, silver, and copper known as Tanka made comprised the
money9.
The entire empire's monetary system was unified by the Mughal Empire in 1526 AD. The
genesis of the rupee took place during this century when Sher Shah Suri fought Humayun and
introduced the Rupiya, a 178-gram silver currency. Throughout the whole Mughal era, the
silver coin was in circulation. The British coins were called Carolina for gold, Angelina for
silver, Cupperoon for copper, and Tinny for tin.
1) Carrying a lot of metallic cash was necessary to handle big payments or a lot of
transactions. This was the main disadvantage.
2) It was exceedingly challenging to handle because it was necessary to measure the metallic
money at every step, including its weight.
4) The cost of metallic money was higher than that of plastic or paper money, making it less
economical.
4) Paper Money:
It was discovered that carrying around gold and silver coins was both hazardous and
inconvenient. Thus, the creation of paper money signalled a significant turning point in the
history of money. Goldsmiths provided receipts for the storing of gold, which served as the
foundation for the invention of paper money 10. These goldsmiths' receipts served as currency
substitutes and eventually evolved into paper money. During the Middle Ages, exchanging
goods for gold and silver with goldsmiths was customary. The goldsmith provided a receipt
as a guarantee. Paper money originated when these receipts were eventually used to make
payments and passed from person to person.
9
Id.
10
History of Money: Check Brief History, Origin, Timeline Here!, TESTBOOK,
https://testbook.com/history-of/money (last visited Mar 5, 2024).
6
The method used to produce paper money changed over time. Notes are printed today using
carefully prepared paper and many complimentary printing processes that ensure a high
degree of security and durability in the finished result. Because paper money was more
convenient to issue and transport, the Chinese made the initial move from metal currency (or
coins) to paper money. Promissory notes, which were signed documents that specified how
much money was owing to the bearer, were the first form of these as a means of exchange.
The notes stated that the issuing bank was "good for" the specified sum of money. This meant
that the holder may exchange these notes for valued goods like metallic coins from the bank.
When the goldsmith bankers recognised that the quantity of commodities being deposited
greatly outnumbered the amount of gold being withdrawn, the system underwent a sea
change.
Paper money was drastically affected by the ability to print and issue more of it than was
being kept in reserve. A state would issue more money as needed, resulting in an excess
supply and hyperinflation11. In the end, paper money output skyrocketed as note values fell.
Paper money now depends more on state policy than on gold as a result of the collapse of the
gold standard, when there were insufficient gold reserves to support the money that was
printed. (Now referred to as fiat money).
5) Fiat Currency:
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money was the legitimate owner. Money can be traced back to a person's identification or
bank account in an account-based system. Since it is merely a representation of money rather
than the actual currency, it cannot be considered a bearer instrument.
Debit and credit cards were introduced by banks, enabling customers to make purchases
without carrying cash. ATMs were also developed to provide customers with the option to
obtain cash without going to a bank location. Online banking platforms followed, making it
easier for people to handle their finances.
Both physical and digital fiat currency remained the fundamental form of money.
6. Digital currency:
Money paid via a portable electronic device for a good or service is known as a mobile
payment. (Smartphone, tablet, etc.) This type of exchange leverages technology to make fiat-
backed transactions easier; PayPal and Apple Pay are two examples of this type of
exchange13.
One type of digital currency is virtual currency. They are not physical like paper money;
instead, they are issued by private parties, like a consortium of developers or organisations,
and are solely meant to be used online.
This is where the world of private cryptocurrency assets, like Bitcoin, opens up. Bitcoin is a
non-government-issued currency that employs a decentralised mechanism to eliminate
double-spending without the assistance of a middleman.
This also gives rise to CBDCs, even though they are not considered virtual currencies by
definition. This is due to the fact that it is only an alternative digital representation of fiat
currency, which is issued by central banks; it is still programmable money that utilises
blockchain and other cutting-edge technologies14.
Nations all around the world have started creating new types of programmable digital money
in the form of CBDCs, spurred by the emergence of private crypto assets. On a network of
computers, there is digital currency that may be designed to function a specific way. (Among
other ways, including via the use of smart contracts).
13
The history of money, supra note 6.
14
Evolution of money — lesson. Social Science, Class 8., supra note 7.
8
Central banks will be able to exert more control over the money supply, money spending, and
money monitoring with the use of programmable digital currency, or CBDCs. This would
help them stop illicit activities like money laundering.
Characteristics of Currency15:
Undoubtedly, one of the most significant aspects of human history is money. Our forebears
were able to overcome the limitations of the barter system, which required them to physically
exchange goods and services, thanks to its development. You can only imagine how
challenging and intricate bartering may have been as communities grew larger: You may have
spent hours or days setting up exchanges between three, four, or even more artisans if you
lack the supplies for a straight deal. Alternatively, it's possible that you were unable to reach a
mutually agreeable trading agreement.
Similarly, paper money made it easier for society to operate on a larger scale. Paper money
made international trading more convenient because it was significantly lighter than coins
made of hefty metal. These days, a more expansive global economy could result from the
decentralisation of digital currency.
15
What is Currency?, supra note 1.
9
Conclusion:
In conclusion, a balance between novel forms of money and sound financial practices is
needed to guarantee that society avoids any catastrophic catastrophes in the future. A strong
infrastructure that can support financial innovation, improved policy tools, and more financial
inclusion are all possible outcomes of a well-thought-out CBDC.
10
Bibliography:
1. Barter System - Definition, What is Barter System, Advantages of Barter System, and
Latest News, cleartax, https://cleartax.in/glossary/barter-system (last visited Mar 13, 2024).
2. Brad Hanson, The History of Money: How Currency Evolved from Pelts to Paper, Intuit
Credit Karma (2023), https://www.creditkarma.com/money/i/history-of-money (last visited
Mar 5, 2024).
11