The Origin of Money: Everything You Should Know
Money is a crucial commodity in any economic system. Some people even believe its money that makes the world to go round. While this claim may not be entirely true, money goes along away in making our lives easier. But have you ever wondered how money came to be?
We’ve got you covered. Before we take a closer look at the origin of money, let’s first have a clear understanding of what money is. More often than not, when you hear about money you probably think about coins and paper currency.
Well, there’s more to it. Economists define money as anything widely accepted by a group of people for the exchange of goods and services. That said, other things can also serve as money. In this article, we will explore everything you need to know about the history of money.
Let’s dig in.
Bartering
A long time ago, people used to exchange goods for other goods. This arrangement, known as barter, required two people to have what the other person wanted or needed.
Although this arrangement worked sometimes, it was laden with numerous problems. One of the downside to barter trade was that it was often difficult to find another person who wanted what you had and had what you wanted. It was also challenging to measure the value of commodities and track debts.
There was a need for a medium of exchange that everybody could accept (something everybody wanted), something that could be used to measure the value of commodities accurately.
The need for a medium of exchange led to the rise of commodity money in the form of shells and pelts. Cowrie shells were famous in Africa while the Americans used the wampum.
Cowrie shells were derived from the Maldives islands in the Indian ocean. The shells were treasured by the Chinese and Indian people from early times. They were carried to Africa through trade lines.
The wampum shells, named so by the Europeans, were small, white and cylindrical shells that were used by American Indians as ceremonial gifts and to decorate ornaments such as belts.
Both the wampum and the cowry shells became market currencies after the arrival of the Europeans.
By the third millennium BC, early Egyptians and Mesopotamians were using precious metals such as gold and silver in financial transactions. The gold was molded into bars that needed to be weighed to determine their value every time they were used in a transaction.
By 2500 BC, silver and gold came in handy in extensive trades in modern-day Syria. Later on, the desire for portability led to the creation of gold rings. These ornaments were worn for display and safekeeping. Some Indians still wear their wealth for these purposes.
Safe in The Temple
Compressing wealth into gold had one disadvantage: it was easy to steal.
The temple came in handy as a safe refuge. These solid buildings had a sacred character and regular attendants that kept thieves at bay. Egyptians and Mesopotamians deposited their gold in their temples for safekeeping.
In the temple, the gold lay idle but outside, the government and the trading community needed it desperately. At the time of King Hammurabi, Babylonian priests began the practice of giving loans. This gave birth to the concept of banking.
The First Mint
In about 650 BC, the use of coins emerged in the city of Ephesus in Ionia. This is the earliest known use of coins in the western world.
The coins were bean-shaped, and made from an alloy of 55% gold and 45% silver. One side of the coin was stamped with a distinguishing mark such as the head of a lion.
The sole purpose of using coins was to ensure a stable value in the variable metal of exchange, which was, until then, traded by weight alone.
In the next century, Croesus, the king of Lydia, became the first ruler to introduce coins made from pure silver and gold. Like their predecessors in Ephesus (modern-day Turkey), the coins in Lydia were only stamped on one side with the facing heads of a bull and a lion.
The Greek cities and the great Persian empires quickly adopted this advantageous technique of metal currency. By the end of the 6th century, the concept of coinage was common throughout the region.
Bronze Coins in China 7th To 3rd Century
Strangely, the advent of coinage in Ephesus coincided with that of China. While the Ephesians used striking to produce coins, Chinese craftsmen poured molten bronze into molds.
The different approaches at coinage led to different looking coins. Since the Chinese were already master bronze crafters, they were inclined to more than simple round coins.
The first Chinese coins were made in two shapes; one resembled a metal spade while the other looked like a knife blade with a handle. Both coins had their surfaces decorated with Chinese characters. These designs spread through the states of china towards the end of the Zhou dynasty.
In the late third century BC, the first emperor of China, Shi Huangdi introduced the round coin. The coin was cast in bronze and had a square hole in the middle. This design was common in the coins used in the far east for the next two millennia.
Greek and Roman Financiers 4th Century BC
The most sophisticated and Varied banking activities were those of the Greeks. Temples, public bodies, and even private entrepreneurs participated in financial transactions. Their activities included:
- Testing coins for weight and purity
- Changing one currency to another
- Taking deposits
- Giving loans
- Booking transactions
It was even possible to find money lenders who accepted payments in one Greek city and made plans for credit in another. This eliminated the need for customers to transport large numbers of coins.
In the 2nd century AD, Romans adopted and regularized Greek banking practices. It was possible to settle a debt by paying the applicable sum into a bank, and public notaries would be appointed to register the transactions.
The fall of the Roman empire and the consequent decline of trade led to low demand for bankers. The fall of bankers was further intensified by the hostility of the Christian church towards the charging of interest. Christians viewed usury as a morally offensive practice.
Origins of Modern Day Currencies
Most of the currencies we use today have their roots in Rome and more specifically from the coins minted in the Roman Empire during the middle ages.
During the Byzantine Empire, the stable currency used was the gold coin known as the Solidus. Later history linked this gold coin to several European shillings. Later on, the coin was joined as a hard currency by another gold coin, the Dinar. The Dinah was first minted in Damascus by Caliph Abd-al-Malik.
King Pepin II later introduced the silver denarius commonly known as the penny. This coin became the standard medieval coin in western Europe.
During the Carolingian dynasty, the kings decreed that 240 pennies were to be made from a pound of silver. As a result, it was established that 12 silver pennies were equal to the Byzantine shilling (Solidus). This was the beginning of the monetary scale of 1: 12: 20 (penny: shilling: pound). This monetary scale was popular in Europe until during the French revolution when the decimalizing innovation was made. In Britain, the monetary scale was used until 1971.
Out of the three coins, the silver penny was the first local currency. The byzantine shilling was used as a yardstick of value while the pound was used to measure weight. Later on, the shilling and the pound became European coins.
Subsequent coins that deserve mention include the 1284 Venetian Ducat and the 1252 golden florin (fiorino d’oro of Florence. The fiorino d’oro gained massive respect and became a factor in the success of banking in Florence.
The dollar, which is one of the most resonant names among modern currencies has its origins in the large silver Joachimsthaler which is commonly known as the Thaler. The Thaler which is named after the silver mines at Joachimsthal was first minted in bohemia in 1517.
Paper Money in China 10th- 15th Century
The Chinese were the first to experiment with paper money during the period of the five dynasties. By the time of the song dynasty, this type of money was largely prevalent.
According to a description by Marco Polo, the emperor of China could make so many notes; he could buy the wealth in the entire world. What is surprising about the paper money in China was that it cost the emperor close to nothing to print the money. By the early 15th century, inflation was so rampant, paper currency had to be abolished during the Ming empire.
Bank Notes 1661–1821
Paper money first appeared in Europe during the 17th century. The Swiss were the first to create the money as well as the first modern bank.
In 1656, Jahan Palmstuch established the Stockholm banco. Although the bank was private, it had ties to the government in that half of its profits had to be paid to the royal exchequer. In 1661 the bank consulted with the government to issue credit notes that could be issued for a stated number of silver coins.
The note, were impressively printed and had eight handwritten signatures.
Like the Chinese emperor, Palmstruch issued more money than his bank could redeem with silver. In 1667, he was disgraced and faced a death penalty for fraud.
Half a century later, another financier John Law, founded a bank in Paris. The bank issued notes from 1719 to May 1720 when a government decree was made to halve the value of the paper currency. Johns ambitions also came to naught.
In the 18th century, the need for a currency that did not depend on the availability of precious metals led to further experimentation with paper money.
When national banks began issuing paper money backed by government reserves, people began to gain trust in the pieces of money.
The Arrival of Digital Money
The idea of digital currency dates back to 1860 when western union conducted the first electronic fund transfer. In the next century, infrastructure was developed that made it possible to develop the first credit card, the cardboard Dinners’ Club card in 1950.
Credit cards continued to grow in popularity, and when portable electronic devices were introduced, mobile banking was born. The concept of mobile banking was achieved using primitive smartphones and personal digital assistants.
In 1982, ecash, a form of digital currency was introduced. Although it was never fully adopted, the currency laid the foundation for future inventions such as hashcash.
In 1998, Wei Dei, a computer scientist created the predecessor to today’s largest cryptocurrency Bitcoin. The coin, named B-money was meant to serve as an anonymous distributed cash system. The coin never launched, but it played a significant role to the creation of Bitcoin.
Modern Day Cryptocurrency
The concept of modern-day cryptocurrencies dates back to 2007 when Satoshi Nakamoto launched the first digital coin, Bitcoin. However, it was not until 2009 that the first Bitcoin transaction took place. Since then the coin has grown into a widely accepted currency that can be used to pay for goods and services.
Today there are thousands of cryptocurrencies that have diversified the ever-expanding digital currency market. In fact, the use of cryptocurrencies is poised to disrupt even the most traditional industries, such as finance and banking.
Currently, cryptocurrencies that are backed by physical commodities such as precious metals are on the rise. These new-generation digital currencies combine the benefits of fiat currencies with those of cryptocurrencies.
Final Word
Money has undergone a remarkable evolution since the dawn of human civilization. From barter trade to paper currency, and now cryptocurrencies, money has taken all sorts of shapes and forms which evolve as time progresses.
Even now, money continues to evolve as it takes the form of digital currency, and the paper currency continues to decline.
So what should we expect next? While we anticipate mass adoption of digital currencies, we cannot accurately speculate the future of money. Live long to experience the transformation as it happens right before our eyes.
