People used to exchange one commodity with the other under barter system of exchange. The barter system of exchange required a condition of ‘double coincidence of wants’ of both the parties. It became difficult to cater the needs of the economy and multiplying human wants with barter system of exchange.
Various civilisations then started to use commodities like sea shells, weapons, metallic coins as the medium of exchange. With the passage of time, the medium of exchange kept on refining and today, we can see money in the form of currency notes, coins and plastic money (debit and credit cards).
There are mainly six stages of evolution of money:
(i) Animal money Use of cow, sheep for exchange.
(ii) Commodity money Use of rice, wheat, cotton for exchange.
(iii) Metallic money Use of gold, silver, brass for exchange.
(iv) Paper money Use of currency notes and coins for exchange.
(v) Credit/Bank/Near money Use of cheques, drafts, bills of exchange, bonds, etc as money.
(vi) Plastic money Use of credit and debit cards for exchange.