From bartering to banknotes to Bitcoin
The words “money” and “currency” are often used in the same way, but some theories suggest they’re not exactly the same thing. As per these theories, money is essentially an idea that can’t be touched. On the other hand, currency is the physical form or representation of that intangible concept of money.
According to this viewpoint, money can’t be physically sensed or smelled. Currency, however, refers to things like coins, notes, or objects that represent money in a tangible way. Money is primarily about numbers, while currency involves items like paper banknotes, coins, or plastic cards like credit or debit cards. Even though this distinction between money and currency is significant in certain situations, for the purposes of this article, we’ll be using these terms interchangeably.
What Is Money?
Money isn’t guaranteed to hold value, whether it’s in the form of a seashell, a metal coin, a paper note, or even a digital code generated by a computer. Considering that the world’s total wealth was approximately $463.6 trillion by the close of 2022, the value of money is determined by how significant it is as a way to trade, a method of measuring, and a place to save wealth.
Money enables people to exchange goods and services without directly swapping items. It plays a role in conveying the value of goods and offers a means for individuals to save their wealth. Additionally, it holds importance as a unit of account, serving as a commonly agreed-upon standard for setting prices and accepting payments. Nevertheless, both how money is used and its physical form have changed over time throughout history.
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From Bartering to Currency
For at least the past 5,000 years, money has been a part of human history in various forms. Before this period, historians widely believe that societies likely used a bartering system for trade.
Bartering involves directly exchanging goods and services. For example, a farmer might trade a bushel of wheat for a pair of shoes made by a shoemaker. However, these arrangements can be time-consuming. If you trade an axe for a promise that someone will hunt a woolly mammoth, you must find someone who agrees that the axe is worth facing a mammoth’s 12-foot tusks. If this doesn’t work, you’ll need to renegotiate the deal until both parties agree.
Over centuries, a type of currency gradually emerged, consisting of easily tradable items like animal skins, salt, and weapons. Even though the value of these items could still be negotiated in many cases, they served as a means of exchange. This trading system spread across the world and persists in some regions today.
One of money’s significant accomplishments was speeding up business transactions, whether they involved mammoth hunting or constructing monuments.
In early August 2021, Chinese archaeologists from Zhengzhou State University uncovered the world’s oldest securely dated coin minting site in Guanzhuang, Henan Province, China. A mint is a place where currency is produced. Around 640 BCE, this facility began making spade coins, which were among the first standardized forms of metal coinage.
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First Official Currency Is Minted
During this time, further to the west, in the sixth century BCE, a Greek poet named Xenophanes, cited by historian Herodotus, attributed the creation of metal coins to the Lydians. Around 600 BCE, King Alyattes of Lydia produced what is thought to be the earliest official currency, known as the Lydian stater.
These coins were crafted from electrum, a naturally occurring mixture of silver and gold. They had images stamped on them to represent different values. For example, around 600 BCE in the streets of Sardis, a clay jar could cost two owls and a snake.
The introduction of currency in Lydia led to the expansion of both its internal and external trading networks, making it one of the wealthiest empires in Asia Minor. Today, the phrase “as rich as Croesus” is used to describe someone wealthy, referring to the last king of Lydia who created the first gold coin.
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Transition to Paper Currency
In 1260 CE, China’s Yuan dynasty transitioned from using metal coins to using paper money as currency. By approximately 1271 CE, when Marco Polo, an explorer and writer from Venice, visited China during his travels along the Silk Road, the Chinese emperor had a good understanding of the money supply and its different values. The inscriptions on Chinese bills at the time were even more severe than the modern American “In God We Trust,” as they warned of beheading for counterfeiters.
Parts of Europe continued to rely solely on metal coins as currency until the 16th century. The expansion of European territories due to colonization brought new sources of precious metals, allowing European nations to increase the production of coins.
Over time, banks began introducing paper banknotes for depositors and borrowers to use instead of metal coins. These notes could be taken to the bank and exchanged for their stated value in metal coins, often silver or gold. This paper money could then be used to buy things, functioning in a similar way to modern currency. However, unlike today’s government-issued currency, these banknotes were issued by private banks and institutions.
The first instances of European governments issuing paper currency actually occurred in their North American colonies. Due to long shipping times between Europe and the colonies, there was often a shortage of physical cash. In response, colonial governments issued IOUs that were treated as currency. This practice started in Canada (which was then a French colony) in 1685, where soldiers were given playing cards with assigned values and signed by the governor to use as a substitute for coins from France.
The Emergence of Currency Wars
The adoption of paper money in Europe had a significant impact on international trade. Banks and the ruling elite began purchasing currencies from other nations, giving rise to the first currency market. The stability of a particular monarchy or government played a role in determining the value of their country’s currency, which in turn affected their ability to engage in trade on the growing international currency market.
This competition among nations often resulted in currency wars. In these scenarios, rival countries aimed to alter the value of each other’s currency. They might do this by increasing the value of the rival’s currency to make their products too expensive, reducing the value of the currency to weaken the rival’s buying power (and capacity to fund a war), or even completely eliminating the currency.
Mobile Payments
In the 21st century, a new kind of payment method emerged, activated by simply touching your finger. Mobile payments involve using money to buy goods and services. They can also be used for transferring money to someone else, like a family member or friend. All of this can be accomplished using a portable electronic device, such as a smartphone or tablet.
Initially, this payment approach gained prominence in Asia and Europe before expanding to North America. Starting with payments made through text messages, the technology progressed to the point where checks could be deposited using the camera app on smartphones and similar devices.
Mobile payment services like Apple Pay and Google Pay are striving to have retailers accept their platforms for transactions at the point of sale. There are also dedicated apps for this payment method, including Venmo and PayPal.
Virtual Currency
Virtual currencies exist solely in electronic form. They represent money digitally and are stored and traded using computer programs or specific software. What sets virtual currency apart is its potential for lower transaction fees compared to traditional online payment methods. Additionally, it operates under decentralized control, differing from government-issued currencies.
Bitcoin quickly became the benchmark for virtual currencies. It was introduced in 2009 by the anonymous individual known as Satoshi Nakamoto,
At one point, the total value of all Bitcoins in circulation reached over $522.5 billion.
(Source: CoinMarketCap. “Bitcoin.”)
It’s important to note that virtual currencies like Bitcoin lack physical coins due to their exchange-based trading nature.
While Bitcoin remains the most renowned and valuable among virtual currencies, other options have also emerged. Examples include Ethereum, XRP, and Dogecoin.
How Long Has Money Been Around, and What Were the First Forms of Value Exchange?
For over 5,000 years, money has been present in various ways throughout human history. Prior to this period, historians widely believe that societies relied on a bartering system. Bartering means directly swapping goods and services. For example, a farmer might trade a bushel of wheat to a shoemaker in exchange for a pair of shoes.
When and Where Did Coin Minting Begin?
The world’s oldest known, securely dated coin minting site was located at Guanzhuang in the Henan Province of China. The mint began striking spade coins sometime around 640 BCE, likely the first standardized metal coinage.
When Were Coins Replaced by Paper Money?
Around 700 CE, the Chinese transitioned from using coins to adopting paper money. When Marco Polo traveled to China around 1271 CE, he found that the Chinese emperor had a solid grasp of both the money available and its different values.
(Source: The Mariners’ Museum and Park. “Marco Polo.”)
The Bottom Line
The story of money is ongoing. Throughout history, the way we trade has transformed from exchanging animal skins to producing coins and then to printing paper money. Presently, we’re at the brink of a significant change towards electronic transactions. Even though older transaction methods have found new uses, like bartering in certain markets such as business-to-business (B2B) interactions and some consumer services, the monetary system will undoubtedly keep changing as long as people need a way to trade goods and services.
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