The basic definition of money is anything that is commonly accepted by a group of people in exchange for goods, services, or resources. Every country has its own exchange system of coins and paper money.
Bartering and Commodity Money
In the beginning, people bartered. Bartering is the exchange of goods or services for other goods or services. For example, someone might swap a bag of rice for a bag of beans and call it an even exchange; or someone might trade the repair of a wagon wheel in exchange for a blanket and some coffee. One major problem with the barter system was that there was no standardized rate of exchange. What would happen if the parties involved couldn't agree that the goods or services being swapped were of equal value, or if the person in need of goods or services had nothing the person who had them wanted?No deal! To solve this problem, humans developed what is called commodity money.
A commodity is a basic item that's used by almost everyone in a given society. In the past, things such as salt, tea, tobacco, cattle, and seeds were considered commodities and therefore, were once used as money. However, using commodities as money created difficulties. For instance, lugging heavy bags of salt or dragging recalcitrant oxen around could prove practical or logistical nightmares. Using commodities for trade led to other problems as well, as many were difficult to store and could also be highly perishable. When the commodity traded involved a service, disputes also arose if that service failed to live up to expectations (realistic or not).
Coins and Paper Money
Metals objects were introduced as money around 5000 B.C. By 700 BC, the Lydians became the first in the Western world to make coins. Metal was used because it was readily available, easy to work with, and could be recycled. Soon, countries began minting their own series of coins with specific values. Since coins were given a designated value, it became easier to compare the cost of items people wanted.
Some of the earliest known paper money dates back to China, where the issuingof paper money became common from about 960 AD.
Representative Money
With the introduction of paper currency and non-precious coinage, commodity money evolved into representative money. This meant that what the money itself was made of no longer had to be of great value.
Representative money was backed by a government or bank's promise to exchange it for a certain amount of silver or gold. For example, the old British Pound bill or Pound Sterling was once guaranteed to be redeemable for a pound of sterling silver. For most of the 19th and the early part of the 20th century, the majority of currencies were based on representative money that relied on the gold standard.
Fiat Money
Representative money has now been replaced by fiat money. Fiat is the Latin word for "let it be done." Money is now given its value by government fiat or decree, ushering in the era of enforceable legal tender, which means that by law, the refusal of "legal tender" money in favor of some other form of payment is illegal.
Origin of the Dollar Sign ($)
The origin of the "$" money sign is not certain. Many historians trace the "$" money sign to either the Mexican or Spanish "P's" for pesos, or piastres, or pieces of eight. The study of old manuscripts shows that the "S" gradually came to be written over the "P" and looking very much like the "$" mark.
U.S. Money Trivia
Likely the earliest form of currency in America was wampum. Fashioned from beads made of shells and strung in intricate patterns, more than simply money, wampum beads were also used to keep records of significant events in the lives of Indigenous people.
On March 10, 1862, the first United States paper money was issued. The denominations at the time were $5, $10, and $20 and became legal tender on March 17, 1862. The inclusion of the motto "In God We Trust" on all currency was required by law in 1955. It first appeared on paper money in 1957 on One-Dollar Silver Certificates and on all Federal Reserve Notes beginning with Series 1963.
Electronic Banking
ERMA began as a project for the Bank of America in an effort to computerize the banking industry. MICR (magnetic ink character recognition) was part of ERMA. MICR allowed computers to read special numbers at the bottom of checks that allowed computerized tracking and accounting of check transactions.
Bitcoin
Released as open-source software in 2009, Bitcoin is a cryptocurrency that was invented by an anonymous person (or group of people) who used the name Satoshi Nakamoto. Bitcoins are digital assets that serve as the reward for a process known as mining and can be exchanged for other currencies, products, and services. They employ robust cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Records of these transactions are known as blockchains. Each block in the chain contains a cryptographic hash of the previous block, a timestamp, and transaction data. Blockchains, by design, are resistant to data modification. As of August 19, 2018, there were more than 1,600 unique cryptocurrencies available online, and the number continues to grow.
FAQs
The first coin we know of is from the 7th century BC and the first paper money came into the world around 1020 AD. Eventually, medieval banking systems gave way to the gold standard, which in turn gave way to modern currency.
Who was the first man to make money? ›
Historians generally agree that the Lydians were the first to make coins. However, in recent years, Chinese archaeologists have uncovered evidence of a coin production mint located in China's Henan Province thought to date to 640 B.C. In 600 B.C., Lydia began minting coins widely used for trading.
What are the 5 stages of money's evolution? ›
There are more than five stages of money's evolution. Still, five notable stages include: commodity money (i.e., grains, livestock), metallic money (i.e., coins), paper money, credit and plastic forms of currency, and digital money.
What did people use before the creation of money how did they get the things they wanted? ›
Before the creation of money, exchange took place in the form of barter, where people traded to get the goods and services they wanted. Two people, each having something the other wanted, would agree to trade one another.
Why did humans invent money? ›
Money is a medium of exchange with a recognized value that was adopted to make it easier for people to trade products and services with each other. The history of money crisscrosses the world as various cultures recognized the need to simplify trade by introducing a single, portable token of value into the process.
Who invented paper money? ›
History. Paper currency first developed in Tang dynasty China during the 7th century, where it was called "'flying money'", although true paper money did not appear until the 11th century, during the Song dynasty.
When did money start to exist? ›
The Mesopotamian shekel – the first known form of currency – emerged nearly 5,000 years ago. The earliest known mints date to 650 and 600 B.C. in Asia Minor, where the elites of Lydia and Ionia used stamped silver and gold coins to pay armies.
Who was the first person on earth to have money? ›
No one knows for sure who first invented such money, but historians believe metal objects were first used as money as early as 5,000 B.C. Around 700 B.C., the Lydians became the first Western culture to make coins. Other countries and civilizations soon began to mint their own coins with specific values.
What is the future of money? ›
Q: What is the future of money? The future of money is expected to be heavily influenced by technology. Predictions include the rise of cashless societies, the growth of cryptocurrencies, the continued adoption of digital currencies, and the potential offering of a Central Bank Digital Currency (CBDC) by governments.
What is symbolic money? ›
The Symbolic meaning of money is a lot money in-depth than just the shiny stuff we scrounge up between our couch cushions. Money is about the exchange of energy, it's symbol of status, and idea of currency has been around since human walked the earth.
'Money is what it does' is defined by Prof. Walker. This means that money is a term which is defined by its functions some of which are medium of exchange, measure of value, unit of account, etc. It includes notes, coins, bank drafts, cheques, bills of exchange, etc.
Where in the Bible is the first mention of money? ›
The first mention in the Bible of the use of money is in the Book of Genesis in reference to criteria for the circumcision of a bought slave. Later, the Cave of Machpelah is purchased (with silver) by Abraham, some time after 1985 BC, although scholars believe the book was edited in the 6th or 5th centuries BC.
What did people do before there was no money? ›
Long before money was invented, when people needed things they did not have, they exchanged their goods and services with others for their goods and services in return . We call it the Barter system. Q. Barter system made it difficult for people to find what they needed and to exchange the same with what they had.
What country has the world's oldest currency? ›
The Bottom Line. The GBP, or British pound sterling, is the official currency of the United Kingdom. The GBP is the oldest currency in the world that is still used as legal tender.
Why did money have to be invented? ›
There are many theories about the origin of money, in part because money has many functions: It facilitates exchange as a measure of value; it brings diverse societies together by enabling gift-giving and reciprocity; it perpetuates social hierarchies; and finally, it is a medium of state power.
Where does money come from? ›
In most modern economies, money is created by both central banks and commercial banks. Money issued by central banks is termed reserve deposits and is only available for use by central bank account holders, which are generally large commercial banks and foreign central banks.
What is the history of the word money? ›
The English word money first appeared in the 14th century. It was derived from the Latin word moneta, a name given to the Roman goddess Juno, at or near whose temple the Romans first began minting coins around 300 BCE. (Read Milton Friedman's Britannica entry on money.)
When was money invented in the US? ›
Paper money in the United States dates back to 1690 and represented bills of credit or IOUs. New currencies were introduced in the U.S. in 1861 to help finance the Civil War.
