Ancient times
Approximately 5,000 years ago, in Ancient Egypt, silver and gold were first used as a method of payment for goods and services (medium of exchange) because at that time a single unit of these non-ferrous metals accounted for a much larger amount of value than any other asset, here we note that although they are heavy elements, their transportation was not difficult compared to, for example, land or houses (portable). Also, silver and gold do not corrode over a long time (durable), they have the same chemical properties anywhere in the world, which makes them an excellent unit of account. But we cannot yet call them real money, because the pieces were of different shapes and weights, had different millesimal fineness and, accordingly, were not interchangeable, which meant that things did not have a price, trade was still a bargaining action when it came to value exchange. But approximately in 685 b.c. Lydia, a small ancient kingdom of western Asia Minor first minted coins of the same weight and size, which made them identical (fungible).
The ancient states, due to the loss of gold reserves, began to reduce the number of expenditures on incomes by devaluation. They collected taxes from the population and began to mix gold with a cheaper metal — copper. If you take a certain amount of gold coins, melt them and add the same amount of copper, then you will have 2 times more coins, this is called scarce financing. Thus, the coins deteriorated, the state washed gold and silver out of them but left their value, which at that date had a nominal character.
As a consequence of the Copernicus-Gresham law (“bad money replaces good money”), people have a tendency to save something rare, for example, coins made of pure silver and gold, and thereat they spent coins that prevailed in circulation — copper coins. Thus, silver and gold coins that went out of circulation could be bought for a handful of copper coins, so this is the first time in the history of mankind when gold and silver had price.
Modern history
Paper currency is a claim check for gold. Everything is simple, you come to the bank, give a banknote, in exchange for this banknote you are given gold or silver. This definition could be considered correct until August 15, 1971, when the law on the convertibility of the US dollar into gold or other reserve assets was repealed by President Nixon. All the money in that period became fiat money (from Lat. fiat “let it be done”) and acquired a new definition: The currency without intrinsic value that has been established as money, the nominal value of which is established and guaranteed by the state, regardless of the value of the material used for their manufacture.
Over the past 5,000 years, there have been thousands of currencies, but their outcome has always been the same — a complete collapse due to the loss of confidence in these nominal repositories of value. As mentioned earlier, those in power, by devaluing the currency, literally took money away from the people. Commodity prices rose due to an increase in the amount of money produced, the people became poorer, revolutions and crises began, and eventually, people transited to a more reliable store of value.
