- Initially, barter exchanges were cumbersome.
- Gold and silver became money due to limited supply.
- Problems arose with physical gold (supply not keeping pace, carrying heavy gold).
- Paper slips (currency notes) backed by gold emerged, issued by trusted persons (RBI).
- RBI now issues notes backed by other assets (government securities, foreign currency).
- Commercial banks were created as a layer between RBI and public.
- This evolution facilitated transactions for increasing goods and services.
- It made the financial system more manageable and efficient.