The History Of Currency

For the last 5,000 years, the concept of currency has been used by humanity in some form or another, with its evolution a testament to our constant innovations and adaptions in the face of economic, societal and technological change.

The Bartering System

Before money existed as a physical form of currency, it is generally believed that transactions were made in the form of bartering. Here, items of value such as food, tools, animals and services were traded. The value of these transactions were not set in stone, and were decided by the participating parties at the time. There were, however, issues that occurred with this system; each participant had to desire what the other was offering at the time.

Commodity Money

Regular items of value soon became traded as commodities. As humans began to domesticate animals, cattle served as a primary source for trade. This practice still exists in some countries today, such as South Sudan, where cattle could even be used to purchase a house. Other forms of commodity included cowrie shells, which are sometimes thought of as precursors to coins. They were used by China from the end of the Neolithic period and are the longest and most widely used currency in history.

Coin System

Around 1000 BC, copper and bronze cowrie imitations were made by China as the first form of coinage. However, according to the Greek historian Herodotus, it was in the ancient kingdom of Lydia around the 7th century that true coins made of a gold and silver alloy called electrum started to become circulated. The idea of coinage soon spread to other countries such as Greece and the Roman Empire, and made transactions much easier and flexible without the need to carry heavy items of trade.

Paper Money

Paper money is believed to have originated in ancient China. In the 11th century, during the Song dynasty, paper money was issued to combat a shortage of copper for coin production and as a result of the weight of carrying around large amounts of coin. The later Ming dynasty tried to replace coins with paper currency altogether, leading to currency depreciation, economy inflation and the eventual withdrawal of paper money in China. It wasn’t until 1661 that Sweden became the first European country to issue bank notes.

The Gold Standard

In 1816, England set the precedence to link the value of bank notes to gold reserves. While this offered stability and assurances, it meant that the amount of bank notes in circulation were limited to the size of the reserves. This created a vulnerability to economic fluctuations and during the depression of the 1930s, countries began to move away from the gold standard towards fiat money – a system where the value of currency is determined by a government decree and allows its value to far exceed its actual worth.

Digital Currency

Since the transfer of electronic money became popular through services such as Western Union, the idea of a digital currency has become more popular in modern times, challenging the concept of banks and currency in its traditional sense. In 2009, a cryptocurrency known as bitcoin was launched, a concept of currency not controlled by a political or corporate authority. With the rise in cryptocurrencies, bionic payments, central bank digital currency (CBDC) and digital technology, it may well be that we move towards becoming a cashless society in the very near future.