The History of Money
The use of money is as old as human civilization. Money is basically a means of exchange, and coins and notes are just items of exchange. But money was not always the same form as the money today and is still developing. Before the invention of money, the basis of early commerce was barter, a system of direct exchange of one product for another. Subsequently, both livestock, particularly cattle, and plant products such as grain, came to be used as money in many different societies at different periods.
Cattle are probably the oldest of all forms of money, as the domestication of animals tended to precede the cultivation of crops. The earliest evidence of banking is found in Mesopotamia between 3000 and 2000 BC when temples were used to store grain and other valuables used in trade.
Some of the earliest currencies were objects from nature. A notable example is cowrie shells, first used as money about 1200 BCE. Although they may seem a pretty random choice, the shells had a number of advantages: they were similar in size, small, and durable. While the molluscs that produce the shells are found in the coastal waters of the Indian and Pacific Oceans, the expansion of trade meant that even some European countries accepted cowrie shells as currency. Shells in the form of wampum were used as money by Native Americans.
Another currency from nature was whale teeth, which were used by Fijians. And the people of Yap Island carved huge disks of limestone that eventually became currency and remained as a part of the island’s culture. While the use of metal for money can be traced back to Babylon before 2000 BCE, standardized and certified coinage may not have existed until the 7th century BCE.
According to many historians, it was during this time that the kingdom of Lydia, in present-day Turkey, issued the first regulated coins. They appeared during the reign of King Alyattes (610–560 BCE) and were made of electrum, a natural mixture of gold and silver. Crudely shaped like beans, these coins featured the royal symbol, a lion. Alyattes’ son, Croesus, reformed the kingdom’s currency, introducing silver coins and gold coins. Soon such currency began appearing elsewhere. About the 6th century BCE, leather and animal hide began to be fashioned into currency.
Early ancient Rome reportedly used this type of money. It was also found in such areas as Carthage, what is now France, and Russia is believed to have used leather money into Peter the Great’s reign (1682–1725 BCE). The Chinese emperor Wudi (141–87 BCE) created currency out of skins from his personal collection of white stags. It was fringed and decorated with elaborate designs.
Although no longer used, leather money may have left a lasting legacy. Given that paper is widely believed to have originated in China, it is fitting that the country introduced paper currency. This innovation is widely thought to have occurred during the reign of Emperor Zhenzong (997–1022 CE). It was made from the bark of mulberry trees. So, in a sense, money really did grow on trees! By the late 18th and early 19th centuries, paper money had spread to other parts of the world.
The bulk of this currency, however, was not money in the traditional sense. Instead, it served as promissory notes—promises to pay specified amounts of gold or silver which were key in the development of banks. Unsurprisingly, currency comes with a number of problems, one of which concerns fiat money. This is currency that is issued on the order of a sovereign government and, unlike gold and silver coins, has no intrinsic value.
Countries can thus issue such money at will, and some did, potentially making the currency worthless. This became such a problem that in 1821 the United Kingdom, then the leader in international finance, introduced the gold standard. In this monetary system, the standard unit of currency is typically kept at the value of a fixed quantity of gold, which increases confidence in international trade by preventing governments from excessively issuing currency.
Eventually, other countries, including Germany, France, and the United States, adopted the gold standard. However, the system had its drawbacks. Notably, it limited a country’s ability to isolate its economy from depression or inflation in the rest of the world. After the Great Depression (1929-1939 AD), countries began to rethink the gold standard, and by the 1970s, gold was no longer being tied to currency.
The 21st century has given rise to novel forms of money including digital payment and virtual currency such as bitcoin. Are paper notes and coins going to disappear soon?
