II. History of Money

Written by Krisztian L.

March 21, 2020

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 up to regulate money flow, which led to inflation in some countries because there was no solid value connected to it anymore.

The breakdown of the Bretton-woods system in 1944 meant the end for the gold standard and it established a new global monetary system with the U.S. dollar as the global currency. This was the beginning of something else; the development into fiat money which is used in most of the economies today and which is a legal agreement between governments. It has to be accepted as legal payment, although does not have intrinsic value.

The next step was the development of a hybrid monetary system being based on the integration of centralised and decentralised mechanisms. It means that the governance and the market power also have their voices in the hybrid arrangement: the system can be seen as the integration of the sovereign system (coin-dominated) and private accounting one.

Checks improved efficiency as they made it possible to transfer money from your account to someone else’s without carrying large amounts of money. But still, this was not the quickest option: the banks required several business days to process them and you had to give your check to the particular person. Moreover, it costs a lot to process checks: in the United States it is estimated to cost about $10 billion every year.

After the internet and computer revolution electronic payments started to spread. It made possible to transfer funds just by few clicks –even automatically– on the specific website, cheaper than checks by more than 1$ per transaction.
E-money (electronic money) is the most popular way of payments in the developed countries since the debit cards which is issued by MasterCard or Visa among others. It allows consumers to purchase anything electronically just by swiping it down through a card reader and deducting the amount from your bank account. Also, there are cards (stored-value card) that work like a prepaid card, you can purchase it for a pre-set amount. Smart cards are even better as you can top them up with the necessary amount of digital cash anytime. The other form of electronic payment is e-cash which is used on the Internet.

The fintech industry have seen potential in the development of how we conduct business with each other. It is constantly growing and new companies like Paypal and Revolut are emerging while both of them are revolutionizing the payment system.

Related Articles

I. History of Money

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...

With the introduction of the history and development of payment methods my aim was to give a brief summary which provides the basic principles of money and through this we will be able to understand the next stages.
This evolution is not over yet but it defines how we will use and think about money in the future. There will be even faster and more convenient methods of payment.
Through the centuries we have seen what caused the necessary changes, how innovation and new technologies shaped the way we use money today. 

It was a long process which has not ended yet and maybe never will. Maybe in a few decades the so called modern banking system will be seen just as an old, traditional one.

As cryptocurrencies arise, a new system might be born and it will create a foundation which can be better in almost every aspect. In the next posts its birth and its technology will be introduced.

Will see what the future brings…

With the introduction of the history and development of payment methods my aim was to give a brief summary which provides the basic principles of money and through this we will be able to understand the next stages.
This evolution is not over yet but it defines how we will use and think about money in the future. There will be even faster and more convenient methods of payment.
Through the centuries we have seen what caused the necessary changes, how innovation and new technologies shaped the way we use money today.

It was a long process which has not ended yet and maybe never will. Maybe in a few decades the so called modern banking system will be seen just as an old, traditional one. 

As cryptocurrencies arise, a new system might be born and it will create a foundation which can be better in almost every aspect. In the next posts its birth and its technology will be introduced.

Will see what the future brings…

Related Articles

I. History of Money

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...