A Brief History of Money
From Barter to Cryptocurrencies
People worry about it, think of ways to get more of it, and dream about spending it. Familiar? Let’s learn together!
How did it start?
Before the agricultural revolution, people had an economic system of their own; they could meet all their simple needs with labor division. Things changed when the sedentary life started. The increasing number of people living together and the need to shop prompted the search for something of value to give in return. The provincial methods used for this were swap and barter. Swap, payment of the debt in the same currency; Barter is an exchange that meets the equivalent of the debt differently. However, the increase in product variety and the lack of a standard measurement value complicated things.
How were values determined?
When the swap system lost its functionality, the commodity money system was applied first. This system can be defined as using precious products in each region instead of money. Some of the earliest currencies were natural objects; seashells were used as money around 1200 BC. These easy-to-carry and durable objects made their way from the Pacific coastal borders to being used as a means of trade in Europe. Fijians used whale teeth. Or barley, which is valuable because it is one of the primary needs under normal conditions and whose value has increased in times of famine, was a simple payment tool in many agricultural societies, especially in Mesopotamia.
Unfortunately, this system was not permanent because the supply-demand balance could not be achieved. The procedure to replace it started with using precious metals in Egypt. Many different metals were used first, but gold, silver, and copper were long-lasting. The gold was used for trade among the states; the copper was used to exchange among the people. These mines could be used as a standard benchmark because they were globally accepted.
Progression from precious metals to modern money
Coins
While metals for money can be traced back to Babylon before 2000 BC, standardized and certified coins may not have existed until the 7th century BC. According to many historians, the Lydian kingdom (in present-day Turkey) monetized the first issued coins. This has made money an object that proves the existence of the state. After discovering coins by the Lydians, this new generation of money was at the center of the world economy for many years. Monetizing capital increased the authority of the rulers. That’s why counterfeiters and clippers were such a threat to the authorities behind these coins. 14th-century Chinese currency warned counterfeiters would be beheaded, and England was known for punishing perpetrators by burning them at stake. Death greeted the first counterfeiters in the American colonies as well. Numerous measures have been taken to prevent fraud. Ben Franklin, who owned a firm that printed money for several territories, mistyped Pennsylvania specifically, believing that the counterfeiters would correct the error in their forgery.
Leather Money
In the 6th century BC, leather and animal hide became fashionable. Early ancient Rome was reported to have used this type of coin. It was also found in areas of Carthage and what is now France, and it is believed that Russia used leather coinage during the reign of Peter the Great (1682–1725 CE). The Chinese emperor Wudi (reigned 141–87 BC) created money out of skins from his collection of white deer. Although it is entirely out of use now, we can say that it continues to be valid, with “buck” being a slang expression for “dollar.”
Paper Money
As we approach the present day, the use of coins has decreased due to the spread of paper money. Of course, paper money, first used in China in the 7th century, did not reach the West as quickly as other Chinese inventions. Paper money in China originated as the equivalent of coins. Promissory notes were bought in exchange for the entrusted coins, and these bills were worth as much as their counterparts. After the Chinese state realized the superiority of paper money, it had a monopoly in the printing business. The state now printed money. Venetian merchants who came to China liked this system and carried it to their geographies. Inspired by this system, Italian banks began issuing coin notes and spread throughout northern Italy as banknotes were used as paper money. Paper money had found a suitable climate in Italian city-states to spread. Modern banknotes were created by blending the innovations from the east in the city centers, which were the trade centers. Realizing the power of paper money before others, the Florentine Medici family became the most significant power in the banking sector in Europe for 400 years.
After the events that changed society’s dynamics, such as the industrial revolution and the French revolution, the public’s view of paper money changed, and paper money began to spread worldwide. Central authorities were strengthened by obtaining the power to print money and overseeing the banking system. Coins produced for gold were introduced. Central banks used to reserve as much gold as the coins in the market. This system did not live for very long. The plan, which was interrupted during the 1st and 2nd World Wars, ended in 1971.
With the Bretton Woods agreement in 1944, the American dollar had a key role, and this agreement moved the dollar to the reserve position. The dollar was pegged to gold. This system, which was running smoothly, became open to speculation as the American economy got into difficulties, primarily due to wars. As a result, the Bretton Woods system was not permanent, and this system was officially abandoned with the decision taken in 1976. The new system was a floating exchange rate system. Now the market has been left to its own devices; the interventionist mentality has been abandoned. The equivalent of money was neither gold nor gold-pegged dollars. The new coins were like the bills of states. Coins that had no monetary value had as much weight as the power and prestige of the state. Today states that issuing paper money is obliged to protect the country’s economic, political, and military power to preserve the value of this currency.
Credit Cards
Although credit has been around for ages, the first universal credit card wasn’t released until 1950. That year, Americans Ralph Schneider and Frank McNamara founded the Diners Club. Other cards were soon created, and in 1959 American Express introduced a plastic card. We are indebted to IBM for the magnetic stripe on credit cards presented in the 1960s to contain account information. With Ribbon, merchants no longer need to make phone calls to get authorization from loan companies. In the 1990s, chips began to be embedded in cards to encrypt their information and provide even more security. Other changes included account balances. Initially, credit card users were required to pay the entire balance at the end of the month. Eventually, American Express allowed consumers to carry balances even though interest was charged, and other lending companies quickly followed suit. Customers benefited from this improvement — it may be a little too much. In 2017, American consumers carried over $1 trillion in credit card debt.
Bitcoins
In 2009, a digital currency system published by an anonymous computer group known as “Satoshi Nakamoto” was created, Bitcoin. As part of this implementation, the first blockchain database was also designed. Tracked by decentralized computer network transactions, Bitcoin’s users are anonymous, known only by their digital wallet identities. The value of Bitcoins is determined by bidding, similar to the way stocks are valued. Concepts such as creating cryptocurrencies, altcoin, blockchain, mining, etc., will be available in “Cryptocurrency and Blockchain 101.”
From barley and seashell swaps to end-to-end encrypted cryptocurrencies, what a fantastic change, don’t you think so?
Check out 5 myths about Bitcoin being debunked!
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