Money: Useful Notes on Evolution of Money!

Need to facilitate exchange of goods led to evolution of money.

Briefly, evolution of money was mainly through commodity money, metallic money, paper money and bank money.

Money is the most important invention of modern times. It has undergone a long process of historical evolution. Human beings passed through a stage when money was not in use and goods were exchanged directly for one another. Such exchange of goods for goods was called Barter Exchange.


The inconveniences and drawbacks of barter led to the gradual use of a medium of exchange. If we study history of money we shall find that all sorts of commodities like seashells, pearls, precious stones, tea, tobacco, cow, leather, cloth, salt, wine, etc. have been used as a medium of exchange (i.e., money).

It is called Commodity Money. Inadequacy of commodity money led to the evolution of metallic money (gold and silver). The problem of uniformity of weight and purity of precious metals led to private and public coinage.

This process was finally taken over by the state as one of its essential features and ultimately commodity money gave way to Paper Money which means currency notes. Nowadays, use of paper money has almost become universal along with coins made of copper, bronze or nickel, etc.

The process of evolution of some better medium of exchange still continues. As the volume of transactions increased, even paper money started becoming Inconvenient because of time involved in its counting and space required for its safe keeping.


This led to introduction of Bank Money (or credit money) in the form of cheques, drafts, bills of exchange, credit cards, etc. These days plastic money in the form of debit cards are becoming popular. Thus, bank money has become the most important form of money in modern times because it is not only a very convenient form of money for large payments, but also eliminates risks and is durable.