The History of Money: From Barter to Bitcoin, Part Two
Today we continue to study the history of money. In the previous article, we examined economic relations before the invention of coins, as well as the history of one of the most ancient monetary units in the world — the shekel. Now, let’s look at the evolution of money from the invention of coins to the advent of banknotes.
Coins
Although the use of metal as money can be traced back to Babylon as far back as 2000 BC, it is generally accepted that standardized and certified coins did not exist until the 7th century BC. Herodotus and a number of other ancient historians believed that it was at this time that the kingdom of Lydia (the territory of modern Turkey), during the reign of King Alyattes (c. 610 — c. 560 BC), began to issue standardized coins. They were made of electrum, a natural mixture of gold and silver, and featured a crudely shaped royal symbol, the lion. Ayatta’s son, Croesus (reigned c. 560–546), reformed the monetary system of the kingdom by introducing silver and gold coins. Soon, coins began to appear all over the place. Of course, there were other forms of commodity money in those days. In pastoral societies, for example, cows were a universal measure of price. But, one way or another, coins gradually became the dominant form of money, since they were relatively easy to transport, they were stored for a long time and were less susceptible to environmental disasters.
China also had a fairly ancient tradition of using coins. Prototypes of coins in the form of bronze items of approximately the same shape were already in the 5th century BC (some historians believe that even earlier). Later, the first founder of the unified Chinese statehood, Qin Shi Huang (who ruled China from 248 BC until his death in 210) introduced standardized coins into circulation — bronze (sometimes copper) coins with a square hole in the middle. At the same time, the most remarkable thing is that China is considered by many historians to be the country that invented paper money.
Paper money
Coins are, of course, more convenient to move from place to place than mammoth skins. However, in large quantities, it is still difficult, and there may not be enough precious metals for their minting. Although paper-like materials such as Papyrus were already in ancient Egypt, paper in the modern sense of the word was invented in China, and therefore it is logical that this is where the use of paper money began.
Paper money began to be used during the Tang Dynasty. Originally, paper money was just an official printed receipt and was called “Flying Money” (飞 钱 fēi qián). It was much more convenient and safer to transport compared to other alternatives for large transactions.
Of course, it was more convenient than constantly carrying kilograms of coins with you. In later China, a merchant could hand over his coins to the government’s courtyard and receive a paper receipt, which he could then exchange again for coins in another region of China. We can say that the idea of paper money is closely related to the idea of IOUs.
Knights Templar
The aforementioned system of “flying money”, which was already encountered earlier among the Chinese dynasties, was adopted by the Order of the Knights Templar in Europe. In China, “flying money” was ruled by the state, but the Knights Templar were a much more complex and mysterious organization. Formally, it was a private bank owned by the Pope. The Knights Templar accepted coins for safekeeping and issued in return an IOU, with which one could come to any representation of the Order and get their money back. This was especially a popular way of keeping your money during the Crusades. But there was a nuance — in the event of the death of the person who left the money to the Knight Templar, everything that was left for storage was transferred to the Order. Needless to say, the Knight Templar got rich very quickly …
Before their collapse in 1312 (Jerusalem fell a little earlier, in 1244), the Order of the Knights Templar was the largest financial institution in the world, a kind of medieval transnational financial entity that concentrated a huge amount of very valuable information about kings, princes, aristocrats, clergy and just wealthy people of Europe. Some conspiracy theorists argue that the Order’s legacy remains strong to this day.
Origin of banknotes
So, banking all over the world began to gain momentum. Usually they worked according to the following principle: a person gave coins to a bank or its equivalent, and in return received an IOU, which allowed him to return the money he had invested. At first, such receipts were assigned to a specific person, but later they introduced the practice of exchanging money upon presentation of a document. For example, in the middle of the 17th century, the relatively fast inflation of gold in Europe caused the need to change the monetary system. Then the Goldsmith bankers from London introduced the practice of issuing receipts for payment directly to the bearer of the document, and not to the original depositor.
Gradually, such banknotes became a full-fledged means of payment. In 1833, a law appeared in the United Kingdom prohibiting the use of banknotes of the Central Bank of England as a universal means of payment in peacetime. Another very important event happened: the central bank of England was able to provide a monopoly on the issue of money.
We can say that this was the starting point of the sins of the monetary system, the crisis of which we are now experiencing.
What is the Gold Standard? Central banks: what is the essence of their power? How did we come to the modern paper money system? We will discuss it in our future publications.
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