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Explain the different stages in the evolution of money. 

Asked by Topperlearning User 24th April 2015, 7:31 AM
Answered by Expert
Answer:

Different stages in the evolution of money: 

  1. Barter system is a system where goods were exchanged for goods in the olden days. Various commodities used as money is known as commodity money. It is the most primitive form of money. However, certain problems such as improper standardisation, indivisibility, storage difficulty etc. made this form of money an unsuitable medium of exchange.
  2. Mono-metalism and bi-metalism, i.e. valuable metals such as gold and silver, were used as a medium of exchange. As society progressed, different sections of people agreed to consider some precious metals as a common medium of exchange. The gold coin was introduced in India by King Kanishka of the Kushan Dynasty during the first century AD.
  3. The paper currency system is a system where coins and currency notes are used as a medium of exchange. Due to the expansion of trade and commerce and an increased demand for money as a common medium of exchange, metallic money was replaced by paper money. The Central Bank of a country assumes supreme authority in issuing paper money of definite denominations and values. A medium of exchange which is generally acceptable and enforced by law is called fiat money. For example, rupee notes and coins are legal tender.
  4. At the final stage of evolution of money, demand deposits with commercial banks are considered bank money. Demand deposits are current account deposits with banks or other financial institutions which are payable on demand by cheques. Thus, cheques drawn on the demand deposits of commercial banks can be used as a medium of exchange.
Answered by Expert 24th April 2015, 9:31 AM
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