Money is the most important invention of modern times. The evolution of money has passed through various stages, in accordance with time, place and circumstances. Economists have identified five such stages in the evolution of money. These are
(i) Animal money
(ii) Commodity money
(iii) Metallic money
(iv) Paper money
(v) Bank money
(i) Animal Money: During the earliest period of human civilisation domestic animals were used as money. Different things were valued in terms of cattle that one could command in exchange. In ancient India, according to Arthaveda, Go-Dhan (cow wealth) was accepted as a form of money. Similarly, in the fourth century B.C., the Roman State had officially recognised cow and sheep as money to collect fines and taxes.
(ii) Commodity Money: Later on, money took the form of commodity money. Commodity money is a good whose value serves as money. In many countries, a large number of commodities such as bows, arrows, animal skins, shells, precious stones, rice, tea, tobacco etc. were used as money. The selection of a commodity to serve as money depended upon several factors like the location of the community, climate of the region, cultural and economic development of the society etc. For example, people (or communities) living by the seashore chose shells or dried-fish as money. Likewise, in the cold regions like Alaska and Siberia, people adopted animal skins and furs as money. In the tropical regions of Africa, people used ivory and tiger-jaws as money.
(iii) Metallic Money: With the passage of time, it was realised that goods cannot be stored for a longer period and lack uniformity. Commodity money therefore, changed into metallic money. Metals like gold, silver, copper etc. were used as money. It was the main form of money throughout the major part of the recorded history
(iv) Paper Money: It was found inconvenient as well as dangerous to carry gold and silver coins from place to place. More importantly, world's production of gold and silver was not sufficient to match the requirements of trade and industry. Therefore, paper money came into existence. It was introduced in the 17th and 18th centuries and now has become the most popular form of money.
(v) Bank Money: As the volume of transactions increased, paper money started becoming inconvenient because of the time involved in its counting and space required for its safe-keeping. This led to the introduction of bank money. Bank money implies demand deposits with banks which are withdrawable through cheques, drafts etc. These deposits are used as money. Bank money can be transferred either by means of paper orders (eg. cheques) or electronically (e.g. debit cards, internet payments) Cheques are widely accepted these days particularly for business transactors. For example, while purchasing a car or a house, bank money in terms of cheques or bank draft is used.
Bank money can be transported cheaply. And also there is no element of risk involved in its movement. Moreover, cheques can be written for the exact amount