Evolution of Money

• Life among ancient humans

  • Not as complex as it is today
  • Individual provided the bare necessities of life
  • Individual was self-sufficient
• Evolution of human needs

  1. Gained knowledge through learning by doing

  2. Formed families

  3. Individual needs increased

  4. Self-sufficiency came to an end

  5. Process of exchange started
• Barter


  Direct exchange of goods for goods
• Limitations of the barter system

  • Lack of double coincidence of wants
  • Lack of a common measure of value
  • Indivisibility of commodities
  • Difficulty in storing and transferring wealth
  • Difficulty in differed payments
• Commodity money


  Primitive money first used, choice determined by location and economic development
• Paper currency


  • Initially embodied a promise of convertibility into coins or precious metal
  • Evolved into fiat money, decreed by governments as legal tender
• Paper currency and coins

  • Easily stolen
  • Expensive to transport due to bulk
• Checks


  • Payable on demand, allow transactions without carrying large amounts of currency
  • Reduce transportation costs
  • Provide convenient receipts
• Electronic means of payment (EMOP)


  All payments made using electronic telecommunications, e.g. visa cards, credit cards
• Axumite kingdom began using its own coins


  Third century A.D.
• Commodities used as money in Ethiopia

  • Bar of salt (amole)
  • Cloth
  • Beads
• Maria Theresa Thaler


  Coin first minted in Vienna in 1751, introduced to Ethiopia in late 18th/early 19th century, served as medium of exchange until 1945
• First national coin minted by Emperor Menelik II

  1893
• Paper money issued by Bank of Abyssinia for the first time


  1914
• Paper money issued by Bank of Ethiopia, 100% backed by gold deposits


  1932
• After liberation, various foreign currencies used as mediums of exchange

  1941
• Ethiopian government issued new national currency, the Birr


  1945
• With the development of the banking system, checks have also started to be used as money, though there have been some developments in that regard in recent years