Remember when you got your first pocket money? It was such an exciting moment – to receive your own, hard-earned money. The history of money is equally exciting, with many twists and turns along the way.
The history of money starts before its actual invention. Before we had currency of any kind — coins, paper money, gold or silver — we used to barter goods and services. This means that goods were simply exchanged for other goods. People would sell their crops or household items for other crops or services. But this didn’t work out for long, as many disputes came up — who decides that a bag of rice is worth the same as two cows? People would often disagree on the value of the goods and services and hence, there was a need for something more universal.
Enter: Commodity money. This was a form of barter, where goods were exchanged for specific goods. Salt, coffee, tea, tobacco, cattle, were all commodities that were used as a universal currency. But this, too, couldn’t be sustained as it created logistical problems. Lugging around sacks of salt or cattle just to buy some groceries was not convenient.
The first official currency came about in 600 BCE in Lydia, or what is western Turkey today. Historians say the Lydians were the first to mint, or make coins out of metal, and they used electrum, a naturally occurring alloy of gold and silver. The coins were stamped with different symbols and signs, which showed the value of each coin. Metal coins as money caught on quickly in other parts of the world, as they saw the economic boom Lydia experienced after adopting a common currency.
However, the oldest coin that historians have found was minted in China around 640 BCE. So, the possibility of both regions having simultaneously discovered metal money is likely.
While gold, silver and copper coins gained prominence in international trade, one corner of the world was stumbling upon the concept of paper money. Around 700 CE, or the 7th century, China saw the invention of paper notes as a form of currency during the Tang dynasty, and it evolved in the 11th century during the Song dynasties.
Paper money was first introduced in the form of promissory notes by wealthy merchants, who found it difficult to carry around large amounts of coins. So, they would leave the actual coins with a trusted person and, in exchange, carry a note that stated how many coins they had, which they would then use as currency while trading. The traders would then go and encash these notes for actual money. Sounds familiar, right? The same system is still used today, in the form of cash and cheques.
Around the 11th century, when trade between Europe and China was flourishing, the Chinese started running out of copper to mint coins and started using actual paper instead. What started out as a short-term plan by the king at that point turned into a full-fledged practice once they realised its convenience. By the 12th century, the kingdom was printing paper money using wooden blocks to print symbols and letters on it. Some records show they used leather as well before they moved on to paper.
The fact that the Chinese were using paper along with metal as currency spread to the Western world through traders like Marco Polo, the famous Italian merchant who traded oil through the Silk Route in China. But paper money didn’t become a popular currency in Europe until the 17th century when metal became extremely expensive.
For the longest time, it was banks and private institutes that would issue currency and not the government. It was only after European kingdoms started colonising various parts of the world, including India, that governments took the responsibility of issuing currency, which became banknotes. It was especially useful in times of war when buying and trading commodities was crucial. The first instance of a government issuing paper money is recorded in Canada, a French colony. Soldiers were given playing cards, marked with denominations (or values) and signed by the governor to use as cash in France.
The rest, as they say, is history. As countries and governments began to form and international borders grew, the concept of money evolved with it. Countries started adopting uniform currencies and valued them along with other currencies. Today, money has evolved out of the physical space and into the digital with internet banking and cryptocurrency.
We can only imagine what currency will look like in the future. What do you think we’ll be using as money in the next 50 years? Let us know in the comments. You can also save some of you hard earned money in a piggy bank. Learn how to make a piggy bank!
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