conclusion on evolution of money
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Commodity Money:
Today when in India we think of money, it is generally in terms of rupee notes, in the USA it is in terms of dollar notes and in Great Britain it is in terms of Pound Sterling, and all of these are mostly made of paper. However, in the beginning it was commodities which was selected as a medium of exchange and thus came to be used as money.
Bows, sea shells, beads, arrows, furs and skin etc. were adopted as money at different times in the early stages of development, especially in the hunting stage of human development. With further development and in the pastoral stage, animals such as sheep and cattle (goats and cows) were started being used as money, that is, as a medium of exchange of goods. The use of cattle and other animals as money suffered from certain disadvantages.Since all cows and goats were not identical, they could not serve as a standard unit of measurement. Secondly, the supply of animals such as cows, sheep and goats were subject to large and abrupt fluctuations. Thirdly, ordinary commodities and animals cannot serve as a satisfactory store of value.
Metalic Money:
In view of the above limitations of ordinary commodities and animals for being used as money and with further progress of human civilisation, ordinary commodities and animals were replaced by precious metals such as gold and silver for being used as money.
Crowther thus sum up the superiority of precious metals like gold and silver for monetary use “They are easily handled and stored, they do not deteriorate, they have the just the right degree of scarcity and they can be relied upon neither to increase nor to diminish in quantity except gradually.”
But with invention of coinage, it was coins made of gold and silver which began to be widely used as money rather than simple and plain bits of gold and silver whose value were difficult to be ascertained. It is important to note that precious metals were used as money not because they were valuable but because they were scarce. For a thing to serve as money scarcity is more important than value. These days, it is the scarcity of paper money which is responsible for its efficiency as money, its lack of value is no hindrance for it to serve as money.
Paper Money:As it came to be firmly realised for a sound money, scarcity is more important than value, precious metals were replaced by paper money. In the beginning paper money, that is, paper notes were simple claims to and substitutes for metallic money. But in the course of time paper money came to be regarded as money itself. Paper money took the form of bank notes which were not mere substitutes but were considered as an addition to the supply of money.
At first, notes could be issued by all commercial banks but with the passage of time when paper money became inconvertible into metallic money issuing of notes became the monopoly of the Central Bank of a country. Central Bank of India is named as Reserve Bank of India.