Imagine what your life would be like if money was never invented. Waking up, going to the market with some goods, and trading them for your daily necessities. While I personally feel the barter system would have provided us with many interesting opportunities, most experts would agree that the use of a standardized currency has helped the world advance and has made trade easier.
The history and evolution of currency has been an interesting one. The earliest system recognised has been the barter system. A simple enough concept, where people exchange goods instead of payment. However this system had many drawbacks. For instance, if you are exchanging an ax for the skin of a tiger, the person who had to face a tiger would feel cheated and rightly so. Therefore, finding something you considered to be adequate payment for your good or service would have been a difficult task.
This led to the creation of a system of money. The earliest forms of money were natural items like cowrie shells that date as far back as 1200 BC. These items were easy to come by in the civilisations that used them and helped create a sense of uniformity and make trade easier.
The first recorded instance of coins is around the 7th century BC. Civilisations in modern day India, China and around the Aegean Sea. The Indian coins (from the Ganges river valley) were pierced metal discs, and Chinese coins (originally established in the Great Plain) were cast bronze with holes in the center to be strung together. The Aegean coins were stamped by heating and hammering with an insignia. The modern day coins were developed from the kingdom of Lydia in Asia Minor around 7th century BC. The coins were disc shaped and made of gold, silver, bronze or their imitations. These coins had both sides stamped by an image, one of which was traditionally a human head. These coins spread throughout Greece and became the standard for modern day coins.
The silver penny became the first standard coin issued by Charlemagne in 800 AD upon becoming the “Holy Roman Emperor”. The silver penny was the only denomination coin in Western Europe between 794 and 1200 AD. However, the amount of silver in each varied from region to region with coins in Venice containing only 0.05g of silver, while England's coins contained 1.3g. This led to variation in sizes and a difference in the value of the coins.
Paper money was first introduced in 11th century AD in Song dynasty China. Its roots can be traced back to the 7th century during Tang dynasty in the merchant receipts of deposits. These receipts were used by merchants to avoid having to deal with the bulky coins in large business transactions. The government saw the economic advantages of paper money. This led to them issuing a monopoly right of several deposit shops to the issuance of these certificates of deposit. By the early 12th century, they were issuing banknotes worth 26 million strings of cash coins. Due to trade and travel, paper money also became known in Europe by the early 13th century.
After this concept spreading all over Europe, the US and even Indian banks were soon established and they were responsible for issuing “banknotes”. These banknotes varied in value depending on the trust and reputation of the bank that issued it. Only the banknotes of big institutions could be used widely while those of smaller and lesser known institutions were used locally. In England, this practice continued till 1694. In Scotland, this practice is still prevalent with the banknotes being backed by the Bank of England notes. In the US, this continued till the 19th century with as many as 5000 different types of banknotes in circulation at one point.
Soon the governments of different countries issued the right to publish banknotes to their central banks. This led to a standardization of currency in all countries. Initially, all of these currencies were backed by the gold standard but it was later discontinued after the Great Depression and the devaluation of gold. Currently, all currencies are valued by virtual credit of the country.
As technology is progressing, banknotes have been replaced with digital payments and credit/debit cards. These represent the currencies backed by the central banks in digital form creating faster and more flexible payments. In 2008, the first cryptocurrency Bitcoin was created by an anonymous creator under the pseudonym Satoshi Nakamoto.
Bitcoin, like other cryptocurrencies, is based on a blockchain which makes it tamper-proof and completely decentralized. It is theoretically the perfect system providing anonymity to its users along with keeping a tamper-proof ledger of all transactions making it impossible for people to cheat. However, since there is a limited amount of it available and is not regulated like the central bank backed currencies, it is less stable and its value can easily be manipulated by users.
Throughout the history of human civilization, currency has played an essential role in the development of society. It is still constantly being changed and newer developments are coming in the forms of cryptocurrencies and Central Bank Digital Currencies. While it is difficult to predict whether cryptocurrencies will be used as the future currency, one thing is certain: this will not be the final form of currency.
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