“Money is a medium of exchange, which has the advantage of eliminating inefficiencies of barter; a unit of account, which facilitates valuation and calculation; and a store of value, which allows economic transactions to be conducted over long periods as well as geographical distances. To perform all these functions optimally, money has to be available, affordable, durable, fungible, portable and reliable.”
― Niall Ferguson, The Ascent of Money: A Financial History of the World
More than US$90 trillion of fiat currency (government issued money) exists today in cash and bank deposits, yet, no-one invented money, nor did society start with cash. So, how did we get here and has the evolutionary trend reached its end ? or is there something we’re yet to see? Let’s unpack this together.
From barter to banknotes
You’re likely familiar with the barter system, the oldest known medium of exchange. Take away your digital wallet, debit card, and cash. How would you meet your daily needs? That’s a hard one, right?
Technology brought comfort to daily living; you’ll be forgiven for forgetting how money evolved. Back then, if you needed a cup of rice, you’d need to have something else (say a cup of beans) that is roughly the same value and also find someone who has a cup of beans but wants to exchange it for a cup of rice. That’s a cup-full process 😰
If Google Maps existed back then, you could find a match easily and swap goods. But credit to our creativity, people started using other commodities like salt and animal skin as a means of exchange — one of the functions of money. So unlike barter’s direct exchange system, these commodities served as an indirect exchange system.
Soon, precious metals replaced salt and animal skins. These metals had desirable properties of money; scarcity, acceptability, and durability. Merchants started to keep their golds with goldsmiths and trusted them to keep them safe in secure vaults. Enter the element of trust in the exchange system.
But it didn’t stop there. The Chinese started using paper currencies, a practice that caught on with the Europeans later on. So, instead of swapping commodities, we began to exchange issue papers, paper notes, promissory notes, and banknotes. Stashed golds in vaults became a store of wealth/value, and banknotes became the norm, something we still do today.
The barter system brought the concept of ownership, control, and freedom to do whatever you liked with your money (i.e. commodity). The indirect exchange introduced intermediaries into the exchange system, which later morphed into banks holding currencies. Essentially, banks became gatekeepers to what belongs to us.
Money has come a long way to what it is today. Today’s financial system is a product of centuries of creativity, and we’ve practiced it for the last couple of decades. But the world never settles. Right now, it looks like we might be witnessing another evolution in the history of money, one that is taking us back to the old barter system.
The barter exchange is a direct system, but the current indirect exchange system introduced intermediaries like banks who take a cut of our hard-earned money just to keep it safe. What if we could replace banks with lines of code and have a trustless system that eliminates fraud and human errors, so your money is kept secure any day, anytime, anywhere? If this sounds mind-blowing, it’s because it is.
Invisible Money
Computer code is laying the foundation for the next stage in the evolution of money — technology-enabled credit and debit card systems allow for faster and safer means of exchange. Rather than carry cash, you ‘carry’ cards. In some economies like Sweden, cash is almost extinct as card payments have taken over, but in Nigeria, cash is still king. This evolutionary phase in the origin of money presents many questions for governments worldwide. So think thanks are asking what will happen in a cashless society and who bears the brunt.
But that hasn’t stopped money from evolving. Today, blockchain-powered cryptocurrencies like Bitcoin and Ether (Ethereum) are buzzwords with a market cap of about US$1 trillion. Of course, that’s still a far cry from the amount of cash in circulation, but cryptos continue to evolve with many use cases in the real world.
The future of money is invisible. Today, rather than swap banknotes (account numbers), crypto diehards are swapping wallet addresses. It is encrypted money flying from east to west and from pole to pole. Money is no longer physical cash carried about in physical wallets but invisible money carried about in digital wallets. The exchange system started without paper money, and it looks like we might be going back to the roots.
