Money; we use it every day. It’s exchanged in different forms, using different platforms and is the cornerstone of our financial system. But how did it start and what was used before? Most people know so little about something we use every day. Here is a brief history of how money came to be.
The Barter System
Before money, societies still need to exchange something of value for goods and services. Items that were the most useful, reliable and re-tradeable held the highest value but because there was no structure to assign value, bartering involved (sometimes extensive), negotiation. Interestingly the barter system has never left us. Some societies in the world still use it for payment and in times of currency instability, like hyperinflation, some have no choice.
The History of Money
We don’t know the exact details of where money came from. Some archeologists have pegged the beginning of currency at around 1100 BC in China. Originally it consisted of miniature tools made of bronze but eventually these were abandoned for circle shapes.
The first coins found come from ancient Lydia (a part of Asia Minor), dated at about 600 BC. Made of an alloy of silver and gold called electrum, they were stamped with animals and assigned denominations. The first bills created were in ancient China. They were made of leather and could be up to one foot in size, which isn’t very practical. It was around 550 BC that the Chinese created the first paper money but its use fluctuated over the years.
So far it all seems simple, but that wasn’t to last. In medieval Europe the difficulties in transporting large amounts of coinage over long distances caused traders to begin issuing promissory notes which lead to the expanded use of paper bills. Initially bills were backed by private banks but in 1694 the English government got involved and was the first to grant rights to the creation of banknotes, giving the Bank of England the responsibility.
The Gold Standard
England was also the first to use the gold standard. This meant currency was valued against its established weight in gold. This standard was adopted all across Europe and North America by the 1900s, but it wasn’t to last. Many factors including wars and depressions led governments to abandon then reinstate the gold standard. It was finally abandoned by the United States in 1971, with most of the world following suit. As the reigning super power they claimed their currency was backed by faith in the government and all the goods and services in the economy. Since then, internationally, most currencies are backed by the American dollar.
Lucky for us Canada has experienced a long period of currency stability, but many countries haven’t been so lucky. As the world has become more economically intertwined new problems have come up, inspiring changes and innovations in payment systems. Next time we will look at how credit cards started and developed.
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