I. History of Money

Written by Krisztian L.

March 14, 2020

In this post I am going to introduce the history of money; how money evolved starting with bartering, primitive money and following it with the traditional monetary system where gold, silver and fiat currency were used until modern banking and e-money have seen daylight..

Today we see a different world than our ancestors did. Everything here now went through a long process, mainly constant development and innovation while some things changed entirely. Money is a good example of this because it is a result of this progress and change.

Centuries before money was invented, people were bartering. This was the old model when people exchanged goods or merchandise they had in surplus in return for those they needed or lacked so it was in line with the elementary needs of the members. It still occurs in many economies even where they know and use money. For bartering to work, people had to find the right person to make a deal with and agree on the values of each goods or merchandise, or what economists refer to as a mutual coincidence of wants. 

As primitive money developed, there were hundreds of objects, replicas, and metals used as symbolic money in various shapes and sizes. The exchange difficulties later created the need for a better way of doing business: the first coins and paper notes were invented.

The invention of coinage can be dated back to 600 BC when the use of coins started to widespread rapidly around the countries from its birthplace Lydia into for example the Persian empire, western colonies and to Greece. The coins were minted in silver, gold and other metals which depended on different and changing factors like the availability of raw materials. The problem with coins was that their value depended on their weight.

The first paper notes are dated back around 800 AD when the shortage of copper which was used for coinage caused Hien Tsung emperor to create a new form of money temporarily. Later the government borrowed the invention and China experienced paper money from the 9th century long before banknotes became common.

Marco Polo introduced the idea of Chinese paper money to the Europeans in the 13th century so he became the main source of information about banknote manufacture. 

In the 14th-15th century the first banking companies were created in Italy and supervised financial operations. In Italy the monetary system was rather complicated because several states had their own currency. The expansion of trade and the transportation of large sums of money required simplification so bills (promissory notes) had become necessary and their use a customary practice. After the formation of these bills in Italy the practice became widespread to European countries later.

People became aware of the paper money’s greater efficiency as it had a unique advantage; it could be mass produced without relying on different materials such as gold or silver.

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II. History of Money

In this post I will continue the history of money from fiat money until modern banking and e-money emerged. "For a long time money was pegged to the gold reserve – backed by gold – to give its legitimacy and value. This established trust until central banks were set...

The first banknotes have seen daylight in 1661 in Europe, Sweden followed by others later. Banknotes meant an attractive and convenient means of payment and played an important role mostly through coin shortage. They were easier to transport than coins which had an uncertain value and the people were willing to hold onto them as far as the banks redeemed the notes.

As for the United States, banknotes represented 40 percent of the country’s money supply back in 1820. The Free Banking Era between 1837-1863 was an interesting period as almost any kind of bank could issue its own note. This led to counterfeiting and to the redemption of notes which had been issued far away. In 1863, the National Banking Act set up guidelines on a national scale on money issuance.
Later, a new currency was introduced by the Federal Reserve Act of 1913, just before the I. World War which remained the national currency in the United States till the present days.

Presently, central banks have the monopoly of money supply in nearly all of the developed countries.

In the following post I will further discuss the fiat money and will share some insights on the modern banking and e-money.

Stay tuned everybody…

The first banknotes have seen daylight in 1661 in Europe, Sweden followed by others later. Banknotes meant an attractive and convenient means of payment and played an important role mostly through coin shortage. They were easier to transport than coins which had an uncertain value and the people were willing to hold onto them as far as the banks redeemed the notes.

As for the United States, banknotes represented 40 percent of the country’s money supply back in 1820. The Free Banking Era between 1837-1863 was an interesting period as almost any kind of bank could issue its own note. This led to counterfeiting and to the redemption of notes which had been issued far away. In 1863, the National Banking Act set up guidelines on a national scale on money issuance.
Later, a new currency was introduced by the Federal Reserve Act of 1913, just before the I. World War which remained the national currency in the United States till the present days.

Presently, central banks have the monopoly of money supply in nearly all of the developed countries.

In the following post I will further discuss the fiat money and will share some insights on the modern banking and e-money.

Stay tuned everybody…

Related Articles

II. History of Money

In this post I will continue the history of money from fiat money until modern banking and e-money emerged. "For a long time money was pegged to the gold reserve – backed by gold – to give its legitimacy and value. This established trust until central banks were set...