Just like human evolution, money and the form in which it is traded has also seen layers of evolution. As the society matured and expanded economically, socially, politically, linguistically and commercially, currency also evolved – from using weapons and salts for trading to making payments digitally today via QR Codes. Some of the major stages through which money has evolved are –
1. Barter/Commodity Money: At the very beginning, there was no currency. People would engage in barter. This simply meant exchange of merchandise for merchandise, without taking value equivalence into note. Commodity money was somewhat similar but utility of few selective commodities came to be more sought than others. Accepted by all, these assumed the role of currency, circulating as an element of exchange for other products.
2. Metallic Money: When metal got discovered, it started getting utilised massively to make weapons and utensils. Soon, coins made of various metals such as gold, silver, bronze, nickel, etc. came into being. These provided ease to people as metallic coins could be counted, rather than weighting, greatly facilitating commerce.
3. Bank Notes: In early times, people would give their gold to goldsmiths for safe custody and the goldsmiths would give the depositors a receipt. Thus, these goldsmiths’ receipts became a substitute for money. The paper money was backed by gold and could be converted to gold on demand. With time, people started using these to make payments, circulating from hand to hand, giving origin to paper money.
4. Credit money: As commercial banking evolved, the concept of deposit money or chequable deposits gained ground. Banks issue ‘cheques’ to depositors up to the balance available in their deposit accounts in that bank.
5. Plastic Money: This is in form of credit and debit cards, widely in use worldwide.
6: Digital Money/Virtual Money: This is new form of currency where in transactions are done through digital gadgets or any electronic means. This stage is a whole new universe wherein the currency, for the very first time, is intangible and won over the limitations of distance, time and speed. Individuals have multiple virtual wallets, can buy/own online properties, and make all kinds of payments with proper records of transactions being maintained. Blockchain technology has further expanded the scope of digital currency.
Digital Currency & India’s eRupee
India’s finally launched its e-Rupee on 1st December 2022. In order to understand the use and significance of India’s e-Rupee, it is pertinent to understand what is meant by blockchain technology and cryptocurrency.
a. Blockchain technology – It refers to an advanced database mechanism that allows sharing of information in a transparent manner within a network. The database here stores data in blocks that are linked together in a chain. Using blockchain, participants can confirm transactions without a need for a central clearing authority. The data is also chronologically consistent because a chain (storing data) cannot be deleted/altered without consensus from the network. Blockchain is being used to transfer funds, settling trades, voting and at other places.
b. Cryptocurrency – Cryptocurrencies like Bitcoin and Ethereum are powered by the blockchain technology. In simple words, A cryptocurrency is a digital currency, which is an alternative form of payment created using encryption algorithms. The involvement of encryption means that cryptocurrency functions both as a currency as well as a virtual accounting system.
c. Central bank digital currencies (CBDCs) – These are digital tokens (similar to cryptocurrency) issued by any central bank and which exist only in digital form. Instead of printing money (physical), central banks issue widely accessible digital coins in order to make digital transaction and fund transfer simple.
d. India’s r-Rupee – India launched its digital currency e-Rupee (e₹-R) on 1st December 2022. This CBDC issued by RBI is an electronic version of cash, and will be primarily meant for retail transactions. Four banks are participating in Phase 1 of the pilot, viz., State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank in four cities across the country – Mumbai, New Delhi, Bengaluru, and Bhubaneswar. Subsequently, the service will extend to other cities and bank. Users will be able to transact with eRupee through a digital wallet offered by the participating banks. Transactions can be person-to-person, person-to-merchant, or through QR codes.
Rise of ‘Bangla-Pesa’ currency and ‘M-Pesa’ in Kenya
Kenya is often seen as Silicon Valley of Africa as it is leading the African continent in the tech domain. Along with technology, Kenya is also spearheading Africa’s alternative currencies movement. This was started when Kenya had become the first African nation to trial a community currency called the Bangla-Pesa. As citizens of Kenya struggle to make ends meet, residents of some informal settlements, or slums in Mombasa have been using Bangla-Pesa as an alternative currency since 2013 in order to meet their needs. These slums, are known as Bangladesh in the town of Mombasa on the Kenyan coast, hence, the name Bangla-Pesa. The main objective of the Bangla Pesa has been to promote the slum areas to operate at maximum efficiency, providing people opportunities and potential to earn more.
The system works by creating a market for excess goods and services that would otherwise go to waste. Often in Bangladesh, many businessmen and owners would have products and services available but because of the economy being in down turn, no one would buy those products or services. What happenned after the introduction of Bangla-Pesa is that these same traders began getting Bangla-Pesa, the alternative currency as vouchers to meet their excess needs, allowing them to trade with others at a time when things would normally be stagnant. This system resulted in an increase in market efficiency, which basically means that people are operating closer to their full economic potential. Bangla-Pesa is now being used to pay school fees and funeral expenses, in harambees, as a church offering and in many other forms.
M-Pesa in Kenya: Before 2007, Kenyans used a mixture of formal and informal channels to transfer funds and only few had access to banking and other financial channels. However, it was observed that around 83 percent of the population of 15 years and upwards had access to mobile phone technology. This was followed by M-Pesa becoming the leading money transfer method in the country at a blistering speed. M-Pesa is an SMS-based system that enables users to deposit, send and withdraw funds using their mobile phone. Users do not need a bank account for this and can transact at any of the numerous agent outlets available across the country. Reportedly, 43% of Kenya’s GDP flowed through M-Pesa (according to 2016 figures).
Some Unusual form of Currencies
Before the paper money and digital money, the world has had many forms of currencies, with some of them still in use in various parts of the world. Some money forms have been effective catalysts for trade even over thousands of years. Other currencies, from squirrel pelts to parmesan cheese, too have enjoyed their time as currencies in history. However, they ceased to stay successful for long and eventually got made obsolete. Some of the examples are mentioned below.
a. Salt: Salt is highly valued since ancient times. However, its production was very limited in the early times, which led to people to use it as currency. Reportedly, as early as the 6th century, Moorish merchants in sub-Saharan Africa regularly used salt and gold at the same value per ounce. In what is now called Ethiopia, rock salt slabs used to be used as coins. Salt was also used as pay soldiers in Ancient Rome. In fact, the word “salary” originates from a Roman word “salarium”, which means “money used to buy salt”. The soldier would get their salary cut if he was found to be “not worth his salt”, a phrase still widely in use today.
b. Tea Bricks: From as early as 9th century till the 20th century, tea bricks were used as currency in many countries including China, Turkmenistan, Tibet, Serbia, Mongolia and some parts of Russia too. Tea bricks came in different shapes and sizes, and quality of tea used to make the brick determined the brick’s value.
c. Rai Stones: These are giant circular stones (with a signature hole in the center) that are forged from a single piece of limestone. Hundreds of these extraordinary, human-sized discs of rock are scattered all over the Micronesian island of Yap. As for its monetary use, the stones typically remain stationary; only the ownership changes. Although Micronesia’s official currency is now the US dollar, stone money is still in use for transactions like marriage, purchase of land or compensation in case of wrongdoing.
d. Wooden Bills: World War I left Germany wrecked economically. Inflation led some towns to make their own bank notes out of wood. This currency was referred to as “notgeld” which literally translates as “not gold”.
e. Dolphin Teeth: Some villagers in Solomon Islands used dolphins’ teeth as currency. The islands have a long history of hunting dolphins a practice which came to a halt around mid-19th century. However, some parts of the island have reverted back to the traditional use of dolphins. Today, dolphin teeth are sold for even jewellery and cash.
f. Knives: This strange form of currency was reportedly used throughout China around 600 BCE, at the time of the Zhou dynasty. The knives would have different inscription or symbols to mark their value.
g. Squirrel pelts: In the Middle Age time, squirrel fur was used as common form of currency in Russia. Snouts, claws and ears were even used as change.
h. Parmigiano Cheese: Parmesan cheese has been in use as currency since historic times. Italian bank, Banco Emiliano accepts the Parmigiano-Reggiano as collateral for personal loans. The Parmigiano-Reggiano is a form of Parmesan cheese that takes two years to mature. Depositors can keep their cheese with the bank as collateral in return for cash loans.
Why Gold is used as currency?
The periodic table has 118 elements organised in rows and columns in the order of increasing atomic number and similar electron configurations. All the elements cannot be seen as currency because many are Gases/Liquids (unable to act as currency), Lanthanides and actinides (can decay easily and become radioactive), or are Alkali and Alkaline-Earth Metals (highly reactive – can even burst into flames). Others are rare, super-rare, toxic or Synthetic Elements.
Once all these get eliminated, only five precious metals left – platinum, palladium, rhodium, silver and gold. Silver has been used as money but it tarnishes rapidly. Rhodium and palladium are relatively new discoveries with limited historical uses. Platinum has extremely high melting point which must have made it impossible for people in ancient times to melt it. This leaves us with only Gold, which melts at a lower temperature and is malleable, making it easy to work with, trade, carve ornaments.
Further, Gold does not dissipate into the atmosphere, or burst into flames, and it does not poison or irradiate the holder. It is rare enough to make it difficult to overproduce and malleable to mint into coins, bars, ornaments and bricks.