The History of Money
Money is a big part of our lives. We use money every day in every exchange and transaction we make. It helps us get from one place to another. We use it to buy food, clothing and shelter, the basic necessities of life and also the luxuries that we want. Everyone accepts it as a form of payment.
Thousands of years ago, before money existed people relied on the barter system.
The Barter System is a system in which two people make an exchange. They each give the other something that they have in exchange for something they want. Let us take an example.
Example Barry is a woodcutter and Mary has a hen house.Mary would like some wood for fire and Barry would like to have some eggs for food. So, each of them gives the other the surplus or extra that they have. Thus, an exchange rate is created.But when one of them has less, the rate must change. If one of Mary’s chickens dues, she will have less eggs and. May ask Barry for more wood in exchange for the eggs and vice versa.
But there was a disadvantage to the barter system. It is a concept called double coincidence of wants.According to this concept, you must find someone who has what you want and wants what you have. But this limits trade.
Eg: Jack grows apples. Mary wants apples but jack doesn’t want eggs, he wants firewood. So, Mary will have to exchange her eggs with Barry first in order to be able to get apples by giving the firewood she took from Barry to Jack. Now, 3 people are a part of the exchange.
But this as you can see, makes trade confusing. So, a larger amount of people makes the trade more confusing.
To solve double coincidence of wants, people had to come up with something that everyone wants.
In ancient china, instead of carrying so many items around with them, they began carrying small tokens that represented the items they wanted to trade. Eventually these tokens were replaced with abstract circles that could represent any item.
The first coins were issued in 600 BC in Lydia, now called Turkey. Paper money was developed by Chinese in 700 AD. They called it flying cash as it had a tendency to be carried away by the wind.
When Marco Polo visited China in the 1200s he brought the idea of paper money back to Europe with him where at that time the Florin had become an international coin accepted all across the European continent.
Paper money wouldn’t receive widespread adoption in the west until the mid 1600s when banks started issuing notes that promised to pay the person who had the note, on demand the sum of gold mentioned in the note. Merchants found it much easier to just trade the notes rather than carry large amounts of metal around with them.
During the American civil war, both sides issued huge amounts of government backed paper currency as there wasn’t enough gold to fund the war. The Union currency that was printed came to be known as greenbacks due to the green colour printed on the back of the notes. In 1946 the world’s first charge card called a ‘Chargeit’ was introduced. It was limited compared to modern credit cards but proved very useful. Finally we entered the digital age in 1980 with the introduction of Automatic Teller Machines or ATM, personal identification numbers and Debit cards.
As people began surfing the World Wide Web, electronic money services emerged giving customers an alternative to traditional banks. In more recent times, crypto-currency or Bitcoin has emerged as the latest currency. This form of currency is decentralized, which means it is stored across the entire internet and is not owned by any one person.
Money emerged as a universal medium of exchange because of some of the properties that it possesses.
Here are the properties we find in money as well as in the Bitcoin that is taking over the world monetary system so quickly.
Money must be divisible so that exchange rates can be made. When gold and silver was used for exchange, you couldn’t give smaller amounts of it for a smaller thing. In the barter system, one couldn’t give half an egg or half a cow. The mode of exchange must be divisible and that is what money is able to do. When a commodity is worth less than 1100 rupees, we can pay the seller in 10 or 20 rupee notes. Thus money is divisible.
It must be portable. When people started exchanging gold and silver, it was very heavy and hence difficult to carry around wherever they went. Money or paper notes however, can be carried around easily.
Money must be durable. Money must retain its value. It must not lose it value or else one cannot use it to buy something.
Money must be recognizable. Money must be uniform or exactly the same so that it can be easily recognized and accurately measured and counted. People should know that it is money.
Money should be scarce. Money should be in limited amounts everywhere. If it is limited, it will lose its value. If there is an unlimited supply, everyone will have it and use it without thinking twice. So it should be scarce.
Bitcoin possesses these properties and that is what makes Bitcoin the next most reliable form of currency.
Money has evolved over a very long period of time from being non-existent to being the most desired commodity in the world. We must learn to value it as it is limited and scarce.