As you know, at present money consists of coins, currency notes and deposit money. However, it has taken hundreds of years to acquire its present form. During the early
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| Common Money | Bank Money | |||||||
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| | | | | | Cheques | Drafts | ||||
| Coins | Currency Notes | |||||||
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| Full Bodied | Token | Representative Paper Note | Fist Money | |||||
part of civilisation, money was in the form of commodity money like the cow. sheep, wheat, rice, tobacco, tiger teeth, elephant tusks, etc. The particular commodity chosen as money depended upon various factors like the climate, the level of cultural and economic development of the community, etc. In cold countries like Alaska and Siberia, animal skins and furs were used as money. I n tropical countries elephant tusks and tiger jaws were used as money. In agricultural communities’ domestic animals and goods of daily use took the form of money. However, with the passage of time their use as money was given up due. to lack of their durability, absence of a standard form, etc. The present-day money has also passed through three stages: (i) metallic money, (ii) representative paper money, and (iii) credit money. The present inconvertible paper currency and other credit instruments acting as substitutes for legal money are only a recent development. Figure shows the different kinds of money which exist in modern economies.
With progress of civilisation and economic advancement of societies, metallic coins made of gold, silver, copper etc., were used as money. These coins were of two types:
i) Standard coins or full-bodied coins, as they were called, because their face value aid intrinsic value was the same; and ii) token coins, those coins whose face value was much higher than their intrinsic value.
Later on, currency notes were introduced to replace metallic coins primarily for two reasons: firstly, to economies the use of precious metals and avoid their wastage; and secondly, for the sake of convenience of storage and transportation of paper vis-a-vis the coins. In order to build up the confidence of the public in paper currency, initially the currency notes took the form of representative notes. These representative notes were simply substitutes for metallic money, i.e., convertible into gold or silver coins on demand by the bearer. With increased use of paper money for trarl6actions (due to expansion in production, population and monetized section of the economy) it became almost impossible to allow such convertibility. The present-day currency notes are, therefore, no longer convertible into gold or silver coins and as such may be termed as flat money. Nowadays a sizeable portion of common money comprises this non-convertible paper currency.
Credit money is of more recent origin People keep a part of their cash with banks which they can withdraw at any time they like or can transfer to some other person through a bank cheque. The cheques and drafts, being m s t convenient farm of transferring value, have come to be accepted as bank money, though they are not money proper as their acceptance is optional. However, they perform the most important function of money, viz. as a medium of payment.
