This chapter traces how exchange evolved from barter to modern money. In the barter system people exchanged goods or services directly for other goods or services, using commodities like cowrie shells, salt, cattle and seeds. Through the example of a farmer who has only an ox to trade for shoes, a sweater and medicines, the chapter reveals barter's limitations: the need for a double coincidence of wants, the lack of a common standard measure of value, and the problems of divisibility, portability and durability. Because of these difficulties, money emerged as a common medium of exchange that everyone accepts. The chapter describes the basic functions of money — a medium of exchange, a standard of deferred payment, a store of value and a common measure of value. It then follows the journey of money in India through a timeline: from barter and cowrie shells to metal coinage (the ancient karshapanas or panas with punched symbols called rupas), to official paper money introduced in the late 18th century and controlled today by the Reserve Bank of India, and finally to new digital forms such as debit cards, credit cards, net banking and UPI using QR codes. It notes that some barter traditions, like the Junbeel Mela in Assam, still survive.
The barter systemLimitations of barterFunctions of moneyThe journey of coins and paper moneyNew forms of digital money
Key terms
Barter system
A way of exchanging goods and services directly for other goods and services without using money.
Double coincidence of wants
A situation where two people each have exactly what the other wants and are willing to exchange them directly — a key difficulty of barter.
Money
The common tool that everybody accepts and uses to make or receive payments in exchange for goods and services.
Standard of deferred payment
A function of money that lets payments be made later, since money is accepted as a way to settle debts over time.
Karshapana (pana)
Ancient Indian coins made of precious metals, bearing punched symbols called rupas, issued by rulers.
Reserve Bank of India
The central authority that controls the issue of currency in India; it is not legal for anyone else to issue currency.
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