History of Money

This week, we talk about the history of money.

Barter System

  • Barter system has been in existence since 6000 BC
  • Earliest forms of barter system had livestock trade (sheep, cattle, vegetables, grains)
  • It was first recorded in Egypt
  • Mesopotamia to Phoenicians and the Babylonians improved the system
  • Goods were exchanged for food, tea, weapons, and spices. Even human skulls were used. Salt was a very important trade commodity that Roman soldiers were paid with it.
  • Middle ages, Europeans traded crafts and fur for silks and perfumes.
  • Musket balls, wheat, and deer skins were used by colonial americans
  • The invention of money did not kill barter system. But it made it organised.
  • Barter system came back during the great depression of 1930s in a form similar to that of banks.

Disadvantages:

  • No certification of proof to show legitimacy of the person you are dealing with
  • It depends on trust
  • Possible exchange of bad commodities
  • Need a double coincidence of wants
  • No common measure of value
  • Storage issues high

Advantages:

  • No need of money
  • Flexibility that anything can be traded.
  • Does not have to be material items. You can exchange skills

Coin & Paper Currency

  • Currencies has been in existence for almost 3000 years
  • Chinese started using goods cast made from bronze (cutlery, arrows, spades, daggers)
  • They started using coins to avoid being impaled
  • First known minted currency was a roaring lion coin created by King Alyattes in Lydia (present Western Turkey)
  • It was made using a mixture of silver and gold which is called Electrum
  • Chinese came up with paper currency in 700 BC (Tang and Song Dynasty). These notes in the beginning where only temporarily valid.
  • By 1271 AD, the currency system in China was thriving. The government had took over shops which print currency and made state-issued currency. It was the time when Marco Polo visited the place.

  • Medieval Islamic world build a monetary system during 7th - 12th centuries (Dinar). They are the first to use credit, cheques, savings account, transactional accounts, exchange rates, promissory notes, banking institutions for loans and deposits, etc.

  • Manilla rings were used in West Africa since 15th century for slave trade.
  • Metal coins and Archimedes Principle - To test its purity
  • Europeans used coins up until the 16th century. And it was not until 1661, Europeans (Swedes) started using paper currency.
  • European paper notes could be exchanged at any banks for gold or silver coins
  • More than the government, it were the banks and private institutions who used to regulate the printing of currency
  • First issuance of currency happened in colonial North America so that the traders do not run out of money.
  • Paper currency improved international trade and also lead to conflicts between empires.

  • Impact of World Wars lead the countries involved to print currency out of proportion leading to inflation. The Great Depression of 1930s is a result of this.
  • Gold is set as the standard for printing currency.
  • Mobile and virtual currency - The move towards digital banking
  • Invented in 2009 by the the pseudonymous Satoshi Nakamoto, Bitcoin has become the gold standard of virtual currency.

Facts:

  • American - "In God we trust", Chinese - "All counterfeiters will be decapitated"
  • Currency helped improve Lydia's economy, but they were conquered by the Persians not long after.
  • In 1685, plating cards were signed and issued as currency by the governor for soldiers in France.
  • Coins made out of a mixture of metals were used in India.

unsplash-logoSteve Johnson