7 Stages of the Evolution of Money

What is the evolution of money?

Bartering was a difficult way to exchange goods and services. As a result, people had little choice but to choose a commodity that was widely used as a medium of trade there. As a result, several commodities in a wide range began to be used. Following that, gradually, the most appealing metal coins, such as gold and silver, were used by nearly everyone. Later, coins were replaced or supplemented by paper currency for the reasons of economy and convenience. Along with credit money (bank drafts, promissory notes, and bank cheques) came into use. After that, because of the convenience of transport and security, plastic cards (credit cards, debit cards, shopping cards) were introduced. Electronic Money also play a very important chapter of the evolution of money. Next, new future trend of money is Cryptocurrencies.

Stages of the Evolution of Money

By referring to the above description, we can identify 7 stages of the evolution of money. They are,

Barter economy
Commodity money
Metal Coins
Paper money
Credit money
Plastic money
Electronic money

7 Stages of the Evolution of Money

1. Stages of the evolution of money: Barter economy

The economic system in which goods are obtained by exchanging goods for goods is called the barter economy. In other words barter economy is the economy for direct exchange of goods and services rather than using a medium of exchange such as money.

According to the barter economy definition, barter needs a mutual coincidence of wants between traders because it is based on reciprocity. This need makes bartering more difficult, but in a system with enough traders, most needs can be met. Supporters claim that the mutuality encourages a feeling of community and connection among dealers.

Barter economy example: Let’s say Ben owns a sizable plot of apple-growing land in the village where he was raised. Ben wants to have the carpenter build a bed for the household. Ben then starts the bartering process by getting in touch with the carpenter. They are offered a bed by the carpenter in exchange for two sacks of apples.

2. Stages of the evolution of money: Commodity money

Commodity money has both intrinsic value and market value. It is a kind of money that can be used as a good or service and can be used as a medium of exchange.

In other words, they can be identified as a physical good which can be used as a component for production or can be used as a consumption good. So, commodity money has a intrinsic value. Further commodity money is accepted as a payment method during or after the goods and services exchange process. So, commodity money has a market value.

As an example, we can use gold to create jewelry. Not only that, in early days, people have used gold coins as a medium of exchange when they buy goods and services.

What is Commodity Money? – All the Things You Need to Know

3. Stages of the evolution of money: Metal Coins

So, after the commodity money era, the money has been converted into the metal coins. For this, metals such as gold, copper, and silver were used. Metallic money was the main type of money throughout a huge part of recorded history.

Metal coins were also portable, which made payments convenient. Although metal money has positives, it also inherent with some negatives. So, people have moved to the next stage of the evolution of money.

4. Stages of the evolution of money: Paper Money

Paper money was created because it was unsafe and impractical to transport gold and silver coinage around. This brought an extra degree of security and convenience for individuals while also making it simpler for them to pay for huge amounts of products and services.

The development of paper money was the most significant phase in the history of money. The Central Bank oversees and controls it.

The Continental Congresses in America during the Revolutionary War used fiat paper money known as Continental dollars. Fiat money is a type of paper money that has no physical backing, such as gold or silver, and is only supported by governmental decision.

So in the past, a person might visit the bank to exchange their paper money for metal coins equal to its face value.

In the present scenario, currency notes or paper money is used in the majority of transactions.

5. Stages of the evolution of money: Credit money

We can keep our money in the bank as bank deposits and withdraw them with the help of cheques as per their needs or requirements. Credit money is a type of representative money.

Representative money is a token or certificate and it represents the value of a commodity. Usually people create the representative money using the papers. We accept the representative money as a type of money and they are conveniently used for carrying out transactions.

6. Stages of the evolution of money: Plastic money

After credit money, people have introduced plastic money such as credit cards and debit cards. Plastic money mainly provides convenience and security for transportation and for the completion of transactions.

7. Stages of the evolution of money: Electronic money

The electronic money is the latest version of the evolution of money. A computerized device’s digital storage of a medium of trade is known as electronic money (or e-money). E-money can be used to make payments, whether or not you have a bank account. Of course, a cashless payment system that facilitates fast and simple money transfers of any amount is a major benefit. The global shift to digital currencies is greatly influenced by electronic money.

Cryptocurrencies are another type of electronic money used in modern-day economies. This form of money is digital and is neither controlled or issued by one particular organization. Cryptocurrencies have some characteristics with existing types of money, such as the ability to retain value and to sometimes be used for transactions.

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