Purposes of money
by Afsar Uddin
The development of money
Using barter to trade goods and services: Before money was created, people used a system of barter to trade goods or services.
Using items with intrinsic value as payment: The limitation of barter led people to create systems where the local community used an item they all valued as a means of payment.
Using items that represent value as money: an important stage in the development of money, then, was changing from an intermediate item that had value in its own right (an intrinsic value) to an item that represented value but had no value its own.
Using paper notes as money: China developed the idea of paper banknotes around the seventh century CE. Merchants who traded high-value goods found it impractical to carry large quantities of copper coin. Instead they deposited the coins with a trusted person, who gave them written receipts stating how much was stored in their name. Rather than paying for goods with actual coins, merchants paid by passing the receipt for the coins to the person selling the goods, who could claim the coins in storage.
Over time, people no longer claimed the coins from storage because buyers and sellers agreed that the banknotes represented the value of the coins and would accept the banknotes as payment, knowing they could use it to make payments of their own.
Modern Payments: Most purchases are now made using coins and banknotes or by transferring electronic balances between bank accounts.