The History of Money: From Barter To Banknotes

Money has played a pivotal role in human history and civilization for over 9,000 years, but how and when did we start to use it? In this guide, we’ll look at the history of money.

[by guest blogger Elisa Abbott]

Bartering

Before formal currency existed, most ancient societies used an exchange and barter system. However, as humans started to develop more complex societies, they needed a way to keep track of transactions. Furthermore, finding the right craftsperson or farmer willing and able to make a suitable exchange grew increasingly difficult when people started adopting more varied occupations, such as building and serving as professional soldiers.

Token systems

One of the first known accounting systems was invented by the Sumerians approximately 9,500 years ago. They used clay tokens to represent commodities such as animals or bushels of grain. These symbols, which determined the value of a product, slowly evolved in a system of currency.

Along with clay tokens, early currency took the form of shells and stones. Many of these tokens possessed intrinsic value. For instance, the Chinese traded in cowrie shells, which were considered highly desirable. They were durable and hard to forge, making them a reliable currency.

A cowrie shell
Public Domain Photo, Pixabay

The first coins

The earliest coins were produced in Lydia, which is now part of Turkey, 2,700 years ago. They were made of gold that was combined with other metals. They were not moulded into standard shapes; instead, they were beaten into rough circular forms that were then stamped to indicate their value. Their value was directly correlated to the metal they contained; a bigger gold coin would be worth more than a smaller coin, for example.

Daldis Coin, Lydia
Photography by CNG Coins
Distributed under GNU Free Documentation License 1.2

The rise of complex economic systems

This system enabled traders to conduct business in foreign lands, but carrying coins incurred security risks. To mitigate these dangers, people started implementing more advanced economic systems that negated the need to carry large sums of money. For instance, investors would agree to pay those who went off to explore foreign countries, on the condition that they receive a share of any discovered commodities.

These systems, which were in place by the 1600s, laid the foundations of an increasingly global economy. It gradually became easier to send money and commodities abroad. By the 1700s, many societies began to rely on paper money instead of coins.

The History of the first printed paper money

It is important to note that Westerners were not the first to use printed money. It was first used by the Chinese in A.D. 618-907 and took the form of private statements of credit or receipts. The system worked well for several hundred years until an inflation crisis led to its elimination in 1455.

The earliest Western banknotes, which were first widely adopted in 17th-century Sweden, were redeemable for the equivalent value of coins or gold printed on each note. For instance, notes issued by the Bank of England were printed with the statement, “I promise to pay the bearer on demand the sum of…”

Source: Banknote World Educational

 

Banknotes were regularly counterfeited across the world. As is still the case today, banks and politicians tried to devise ingenious solutions to the problem. For instance, in the US, Benjamin Franklin suggested using leaves from trees to make a unique print on the back of banknotes, because every leaf is different. For the most part, public confidence in the person or bank issuing the note determined its validity.

Fiat money

Over time, Western countries moved away from using banknotes that could be traded in for a specified amount of gold or silver. Instead, governments began to issue fiat currencies. By the 20th century, they had started issuing coins and notes. This form of legal tender did not entitle the bearer to any specific amount of metal; modern coins and notes simply represent a particular value.

In the West, fiat currencies were first used in 18th-century France and in the American colonies. In Great Britain, fiat currency was first used during 1797-1815 so that the government could use gold stored in banks to finance the Napoleonic War. Since then, fiat currencies have resulted in periods of inflation and depression. It is currently used all over the globe.

Modern banknotes

Today’s banknotes include sophisticated mechanisms that make them hard to copy. For example, if you hold a Euro note up to the light, you should see a security thread, a watermark, and a portrait window.

Source: Banknote World

 

On $10 US bills, a special printing technique gives the notes a characteristic feel and texture. They also contain color-shifting ink, watermarks, and a security thread.

Early banknotes were printed on bark, and later on regular paper. However, many contemporary banknotes are made from cotton paper and weigh approximately 85 grams per square meter. They are usually reinforced with materials, such as polyvinyl alcohol, that give it additional strength.

Some countries, including the UK and Canada, also use polymer banknotes. They offer several advantages over paper versions. Polymer stays cleaner for longer than paper banknotes, allows printers to incorporate new security features, and prolongs the banknote’s lifespan. This means they are eco-friendlier than traditional notes.

Source: Banknote World

 

The introduction of credit and debit cards

Cards have been used as an alternative to cash since 1914 when Western Union offered cards that permitted some customers to defer payments. In 1950, Diners Club charge cards came into effect, with 20,000 individuals using the cards by 1951.

In the same year, the first charge card was introduced to the UK. In 1958, American Express produced a deferred payment card, which was launched in the UK in 1963. The 1960s saw the first modern credit card, and by the 1980s, debit cards and cash machines were becoming increasingly common. By 2001, debit cards were used more frequently than credit cards.

The future of money

Westerners now regard online banking as normal, and it seems inevitable that the trend of digital transactions will continue. It is likely that they will become commonplace around the world. Cryptocurrencies, such as Bitcoin and Litecoin, are attracting more public interest.

Coinbase and other online wallets allow consumers to buy and store cryptocurrencies
Source: Coinbase

Whatever the future holds, money will almost certainly maintain its place as a means of facilitating transactions between groups and individuals.

Elisa Abbott is a freelancer whose passion lies in creative writing. She completed a degree in Computer Science and writes about ways to apply machine learning to deal with complex issues. Insights on education, helpful tools and valuable university experiences – she has got you covered;) When she’s not engaged in assessing translation services for PickWriters you’ll usually find her sipping cappuccino with a book.