history of money and its characteristics

1. Money
Dr. Arifa Saeed

2. History of money
Due to the complexities of ancient history, it is difficult to trace the true origin
of the invention of money and the transition from "barter systems" to the
"monetary systems". But following are some of the phases in the history of
money:
• 1. Self-sufficiency: In the early civilization people rely on natural resources
for food and shelter etc. There were only hunterors-gatherers societies and
every one was self-sufficient and there was no specialization and trade.

3. 2. Barter system: When human beings invented agriculture, they settled at
certain places and learned specialization. Specialization resulted in production
of surplus of goods. Surpluses then were exchanged or traded and they
required certain mechanism for that. So the Barter system was in action. The
difficulties faced in barter system are as follows:
• There needs to be a 'double coincidence of wants’: For barter to occur between two parties, both parties need to have what
the other wants.
• There is no common measure of value: In a monetary economy, money plays the role of a measure of value of all goods, so
their values can be assessed against each other; this role may be absent in a barter economy.
• Indivisibility of certain goods: If a person wants to buy a certain amount of another's goods, but only has for payment one
indivisible unit of another good which is worth more than what the person wants to obtain, a barter transaction cannot
occur.
• Lack of standards for deferred payments: This is related to the absence of a common measure of value, although if the debt
is denominated in units of the good that will eventually be used in payment, it is not a problem.
• Difficulty in storing wealth: If a society relies exclusively on perishable goods, storing wealth for the future may be
impractical. However, some barter economies rely on durable goods like sheep or cattle for this purpose.

4. • 3. Commodity money: a wide variety of commodities also served as a medium of
exchange. Commodities used include shells, tea, sheep, etc.
• 4. Metallic money: initially gold and silver coins were used to get goods and
services, then iron, tin and copper were in use.
• 5. Paper money: it has its origin in the receipt issued by gold-smiths to customers
who deposited their money and other valuables to them for safe keeping. The
receipt were issued in smaller denominations. This gave rise to bank notes, today we
use it. Example: $, Rs. Etc. it is predominated form of money in less developed
economies.

5. • 6. Bank money: it refers to bank deposits, which are transferable using:
Cheques, debit cards, credit cards or electronic transfers. Bank deposits are
considered as money but not cheques, cards or electronic transfers. They are
merely orders from the owner to the banker to transfer his or her money to
someone else. Developed countries are cashless societies and they have
greater proportion of their money in the form of bank deposits.

6. Characteristics of money
1. Durability
2. Portability
3. Divisibility
4. Uniformity
5. Uniformity
6. Generally Acceptable