Development of Money

In the early stages of human society, domestic animals such as goats, sheep, horses, cows, and buffaloes were used as money for exchange. When large animals were used as a means of exchange in daily transactions, many practical difficulties began to arise. To simplify transactions, animal parts such as bones, skins, teeth, and horns were gradually used. 

As time passed, grains such as rice, corn, millet, and barley were used as money. After various difficulties arose from the use of animal and commodity money, people started using various metals as money to solve practical problems such as durability of money, acceptability among all, and quality in measurement. 

Although metal money was suitable for long-term use, some difficulties began to arise in daily life for commodity exchange. To mitigate these problems, paper money emerged in China in the 17th century as an alternative. 

The paper money developed in this way has been used in our daily life in the form of notes made of paper of various denominations. This paper money is mostly used to buy any goods or services in the market. 

In the 21st century, banks have introduced cheques and other electronic currencies along with paper money.

Definition of Money

Money is an object that acts as a common medium when transacting goods and services. It is accepted by everyone in society, officially recognized by the government, acts as a common standard, and helps to store goods and services. 

Thus, in the 21st century, money has been used as fuel in the operation of every economic activity of any economy. 

Money has been defined in various ways by different economists, which are as follows:

In the words of economist Frederic Benham, "Money is defined as generally acceptable purchasing power or something which everybody is prepared to accept in exchange for goods and services." 

He has presented money as an object that everyone is prepared to accept in the exchange of goods and services and that ensures purchasing power.

In other words, money is an object that is easily accepted by everyone when buying and selling every good and service in the market and that ensures purchasing power at the time of buying any item.

According to C.R. Crowther, "Anything that is generally acceptable as a means of exchange and at the same time acts as a measure and store of value is money."

According to Georg Friedrich Knapp, "Anything which is declared as money by the state becomes money."

Types of Money (Kinds of Money)

The types of money are also called the forms of money. Overall, money can be divided into two categories.

1. Common Money

Common money includes commodity money, metal money, and paper money. 

A brief introduction of these currencies is as follows:

(a) Commodity Money

Materials or goods used for the purpose of simplifying commodity exchange are called commodity money. In the hunting era, animal skins, bones, horns, teeth, etc., were used as commodity exchange by making them a solid standard. 

Similarly, in the pastoral era, animals such as cows, buffaloes, goats, and sheep were used as a means of commodity exchange. 

Likewise, in the agricultural era, commodity exchange was carried out based on grains. However, since difficulties arose in using all these types of commodity money sustainably, metal money was introduced later.

(b) Metal Money

The introduction of metal money in the course of human civilization marked the beginning of a new era. Metal money proved to be a boon for standard exchange of goods and services in the market. Metal money refers to the currency made of precious metals such as gold, silver, copper, brass, etc., which we use. 

Metal coins have been in circulation in our society even today because of their high reliability and durability. 

Metal money in circulation in our society can be divided into two categories, which are as follows:

Money made of gold, silver, etc., and ensured in weight, value, and purity is called standard metal money. The face value and intrinsic value of such money are always equal. This type of money has unlimited acceptability among the general public. Even when standard metal money is melted and converted into metal, there is no difference in real value.

Money made of ordinary metals such as copper, brass, silver, etc., is called token metal money. In such money, the face value is very high, but the intrinsic value is very low. Such money is issued by the state, so unlimited acceptability remains.

(c) Paper Money

Paper money came into existence as an alternative to metal money due to increasing economic transactions in society, security assurance, and difficulty in transporting money. Paper money refers to the currency issued and circulated by the central bank or government of any country in the form of paper notes. 

The central bank issues paper money in the form of notes of various denominations by printing on special paper with special security by including official symbols. Currently, notes of Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 500, and Rs. 1000 are in circulation in Nepal. 

The face value of paper money used in this way is high, but the intrinsic value is low. This type of money also has unlimited acceptability among the general public because it is issued by the government or the central bank. 

We can also divide the paper money we use into two parts as follows:

Paper money issued by the government or the central bank with 100% security of precious metals such as gold, silver, etc., is called convertible paper money. 

The central bank of the country guarantees that such money can be fully converted into gold or silver when needed, which is mentioned in the currency itself. In this sense, such money is called convertible paper money. 

For example, the Nepalese rupee has such a guarantee ensured by the Central Bank.

Paper money issued and circulated by the government or the central bank without 100% security of gold and silver is called inconvertible paper money. The face value mentioned in this type of paper money is many times higher than the intrinsic value. 

There is no provision to convert this type of money into gold or silver when needed. In this sense, this money is called inconvertible paper money. 

This currency also has unlimited acceptability among the general public because it is recognized by the government or the central bank.

2. Bank Money/Credit Money

By the 21st century, paper money had developed as a very useful currency. Its demand and supply have also increased significantly. As a result, concerns about how to secure increasing transactions increased among stakeholders. 

Banks and financial institutions were established for safe and organized transactions. Banks and financial institutions developed a new method to solve the difficulties experienced in using paper money in a simple, safe, and fast way. 

Under this, checks, ATM cards, credit cards, visa cards, etc., began to be used with full representation of paper money. This type of money is also called bank money or credit money.