INTRODUCTION

The Evolution
of Money
Meaning
 The Evolution of Money Meaning

Money is a medium of exchange that facilitates transactions. It also acts as a store of value and a unit of measure.
The evolution of money is a series of development in the form of the acceptable medium of exchange throughout history.
But why is money so important?
Money is important because it allows us to obtain the things we need and want. It is a crucial element for individuals in an
economy as it is the gateway for individuals to attain utility - receiving satisfaction from the consumption of goods and
services. Money is an agreed-upon form of payment that is used for the purchase and sale of goods and services and can
also be used for lending and repayment of loans.
You are familiar with the paper money that we use in everyday life today, but money has not always existed in this form.
There have been different forms of money throughout human history that played the role of facilitating economic
transactions. This is what we mean by the evolution of money.
 Functions of Money

Money has three main functions.

Medium of exchange : Money functions as a medium of exchange by facilitating transactions between buyers and sellers. In order
for money to be considered a medium of exchange, it needs to be widely accepted in the economy for the purchases of goods and services.

Store of value : Money holds its value in comparison to other commodities. For example, if you earned a hundred dollars in wages today,
you will be able to use those one hundred dollars in the coming days or weeks, whereas if you earned a loaf of bread and some fruit in wages,
they have a restricted shelf life. Money is definitely not perfect in storing value, as inflation would impact the purchasing power of money.
However, it is an efficient and sufficient store of value for its intended use.

Unit of account : Money serves as a common tool for measure for economic transactions. Try to imagine that if you go to one store to
buy a pair of shoes that are listed for 40 bushels of corn, and if you go to another store, the same shoes are listed for 25 apples. Having the shoes
listed in two different forms of payment makes it difficult to determine the true value of the item.
 Stages of the Evolution of Money

he stages of the evolution of money include different forms of money throughout time. The
origin of money was in tangible forms, and in recent years can also be found in intangible
forms. Over time, as economies grew, it was evident that certain practices such as commodity
money are not so efficient for conducting transactions. Other forms of money became more
appealing as they not only satisfied the requirement for a medium of exchange but also
helped the economy grow.
Let's take a look at how economies functioned and the forms of money that they used
Barter or Commodity Money
Paper Money backed by
gold standard

Metallic Money & Coinage

Commodity
Money
 Barter Economy

Before the advent of money, societies used barter as a means of attaining goods and services. Barter is an economic
system in which the members trade goods and services for other goods and services without using a medium of
exchange. An example of a barter exchange would be a farmer who specializes in growing fruits trading with another
farmer who specializes in growing grains. The two farmers would come to an agreement on how much fruit to trade
for grains to meet their individual needs. It was hard for trade to happen, as it would require both sides to want
exactly what the other person had to offer
 Commodity Money

As bartering was difficult for trade, some common commodities slowly took
the function of money. Commodity money is an economic good that acts as
money. Examples of commodity money throughout history included cocoa
beans, tea, tobacco, salt, and seashells, to name a few.
 Metallic Money

As societies and economies evolved, they found better ways to facilitate their trade and transaction. Metals such as gold, silver,
and copper were used instead of commodity money. Metallic money was later standardized and certified in the form of coinage
 Paper Money

The switch to paper is known to have originated in different parts of the world in different Paper Money circumstances. In
America, certain states allowed the citizens to print their own money. The state also printed money which was known as
anticipated tax notes, that were used for buying supplies and other expenditures and for also paying out salaries. In other
parts of the world, paper currency was backed by gold or silver. In America, at the time of the Revolutionary War, the
Continental Congresses used fiat paper money called the Continental dollars.
 Electronic Money

In today's economies, money has taken an intangible form through electronic money. Electronic money is money
that is stored electronically and can be accessed through devices to complete transactions. Other services such
as electronic transfers allow for money to be transferred from one party to another without the use of paper
money.
 Evolution of Money and Banking

So far, we have discussed the evolution of money. However, another important evolution was the evolution of
banking. The banking system in earlier economies constituted of institutions that served as banks, and the role they
played was to keep records of trade activities and transactions. As economies advanced, these banks took on other
roles such as lending. However, the banks weren't lending paper money, but rather lending seeds, grains, and other
commodities of that nature.
 The Evolution of Money - Key takeaways

The evolution of money is a series of development in the form of the acceptable medium of exchange throughout history.
Money has three functions: medium of exchange, store of value, and unit of account.
The characteristics of money are durability, portability, divisibility, uniformity, acceptability, and limited supply.
The following are the stages of money: commodity money, metallic money, paper money, and electronic money.
The evolution of money increased economic efficiency by reducing transactional costs.
 What Is Evolutionary Economics?

Evolutionary economics is a theory proposing that economic processes evolve and that economic behavior is determined
both by individuals and society as a whole. The term was first coined by Thorstein Veblen (1857-1929), an American
economist and sociologist.
 KEY TAKEAWAYS

Evolutionary economics proposes that economic processes evolve and are determined both by individuals and society as a
whole.
It shuns the rational choice theory of traditional economics, arguing that psychological factors are key drivers of the
economy.
Evolutionary economists believe the economy is dynamic, constantly changing, and chaotic, rather than always tending
toward a state of equilibrium.
Most evolutionary economists agree that failure is good and just as important as success as it paves the way to economic
prosperity.
 Understanding Evolutionary Economics

Traditional economic theories generally view people and governmental institutions as entirely rational actors. Evolutionary
economics differs, shunning rational choice theory and instead pinpointing complex psychological factors as key drivers of the
economy.
Evolutionary economists believe the economy is dynamic, constantly changing, and chaotic, rather than always tending toward a
state of equilibrium. The creation of goods and the procurement of supplies for those goods involves many processes that
change as technology develops. Organizations that govern these processes and production systems, as well as consumer
behavior, must evolve as production and procurement processes change.
Evolutionary economics explores how human behavior, such as our sense of fairness and justice, extends to economics and
seeks to explain economic behavior and progress in relation to evolution and evolutionary human instincts such as predation,
emulation, and curiosity. In the free market, the survival of the fittest model is rampant. Consumers have plenty of choices, few
firms can fully meet their needs and everything is in a constant state of flux, meaning that many competitors will be obliterated.
 difference
between economic evolution and mone
y evolution

Economic evolution
The idea that economic processes are constantly changing and chaotic, and that failure is just as important as
success. Evolutionary economists believe that psychological factors are key drivers of the economy.
Money evolution
The history of money, from its origins as a medium of exchange to the digital forms we use today. Money has
evolved from commodity money, such as cocoa beans, tea, tobacco, salt, and seashells, to more abstract forms,
such as checks, credit cards, and debit cards.
 The Evolution of Modern-Day Money

Money has come a long way from its origins as a medium of exchange to the digital forms we use today. We'll explore the
evolution of modern-day money, focusing on credit cards, debit cards, and online payments, and how they have transformed
the way we transact.

Credit Cards: A Convenient Financial Tool

Credit cards revolutionized the way people make purchases. They allow users to borrow money from a financial institution,
known as the issuer, to buy goods and services, with the promise of repayment at a later date. Credit cards offer various
benefits, such as rewards points, cashback, and fraud protection, making them a popular choice for many consumers.

Debit Cards: A Direct Link to Your Bank Account

Debit cards are another modern form of money that has gained widespread use. Linked directly to a bank account, debit cards
allow users to spend money they already have. They offer the convenience of cashless transactions while ensuring that users
stay within their budget, as they can only spend what's available in their account.
 Online Payments: The Rise of Digital Transactions

The advent of the internet has paved the way for online payments, transforming the way people shop and conduct business.
Services like PayPal, Venmo, and digital wallets allow users to transfer money, pay bills, and make purchases online or through
mobile devices. Online payments offer convenience, security, and efficiency, making them a preferred choice for many
consumers and businesses alike.

Security and Fraud Protection

One of the key advantages of modern-day money, including credit cards, debit cards, and online payments, is the security
features they offer. These include encryption technology, fraud detection systems, and the ability to dispute unauthorized
transactions. These features help protect consumers from identity theft and fraud, giving them peace of mind when using
these payment methods.
How Long Has Money Been Around, and What
Were the First Forms of Value Exchange?
• Money has been part of human history for at least the past 5,000
years in some form or another. Historians generally agree that a
system of bartering was likely used before this time. Bartering
involves the direct trade of goods and services. For instance, a farmer
may exchange a bushel of wheat for a pair of shoes from a
shoemaker.
When and Where Did Coin Minting
Begin?
• The world’s oldest known, securely dated, coin minting site was
located at Guanzhuang in the Henan Province of China. The mint
began striking spade coins sometime around 640 BCE, likely the first
standardized metal coinage
When Were Coins Replaced by Paper
Money?
• The Chinese moved from coins to paper money around 1260 CE. By
the time Marco Polo visited China in approximately 1271 CE, the
emperor of China had a good handle on both the money supply and
its various denominations.78
 The Exchange Rate Mechanism

The origins of the par value system of exchange rates agreed at the Bretton Woods Conference lie in the high costs that
were incurred by countries under the gold exchange standard of the late 1920s and that were imposed on countries by the
exchange rate measures introduced during the 1930s. The gold standard, with its emphasis on fixed exchange rates and on
changes in levels of economic activity as the mechanism for correcting external imbalances, was excessively rigid and forced
countries to adjust too abruptly. The exchange rate policies adopted following the collapse of the gold standard, especially
the competitive use of devaluation to promote domestic employment, imposed equally heavy burdens, provoking
retaliatory measures and causing severe dislocations of world trade.
The par value system incorporated in the Fund’s charter was designed to keep rates more stable than during the 1930s but
also to allow them to be more adjustable than under the gold standard. Members could change their exchange rate but
only to correct a “fundamental disequilibrium” and only after consultation with the Fund and normally with its concurrence.
It was widely expected that members would use the exchange rate as one of the instruments of policy
 Conclusion
In summary, the journey of money from barter systems to digital currencies exemplifies human
ingenuity and economic progress. The evolution of money reflects our quest for more efficient, secure,
and accessible means of exchange. Today, credit cards, debit cards, and online payments have
revolutionized transactions, offering convenience and security.Digi Khata further enhances financial
management, catering to diverse needs. As we embrace these modern monetary forms, the evolution
of money continues, driven by technological advancements and societal demands. This ongoing
evolution promises a more connected and digital future, redefining how we perceive and utilize
currency in our daily lives.