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The Creation Story of Money: From Commodity Money to Coins and Paper Bills

Most people on this planet use money on a daily basis, either in physical or digital form. Despite doing so, very few individuals have an idea of how money works, or why the current system isn’t sustainable for much longer.

A Brief History of Exchanging Value

Despite what some may believe, money has not always been around forever. It started making its appearance several thousands of years ago but other systems were in place well before it. For the most part of the era Before Christ, commoners – allegedly – used barter as a way of exchanging value.

Every object is considered to have two uses. There is the original purpose it was intended for, and as an item for barter. Since the concept of coins and bills were not known at that time, one would often trade resources, animals, produce, and so forth against objects of equal value one hoped to obtain.

As is usually the case, the exact value of different objects was very different to compare with one another. It was an imperfect system, although it did not automatically led to the creation of money. In fact, the exact reason for creating money still remains a topic of debate among researchers and scientists to this very day. 

Commodity Money Explained 

One thing most researchers agree on is how there was a form of “commodity money” during the Bronze age. Several smaller and large-scale economies were founded on these principles. including the Mesopotamian civilization. Examples of such commodity money include cowry shells in Ancient China and Africa, as well as the shekel – a specific weight of barley – in Mesopotamia. 

It is also during this period the first examples of “debt” came to light, according to some writings. As time progressed, it became crucial to determine the concept of “money” in a civil society, which posed its own set of crucial challenges. 

The focus of commodity money eventually shifted from cattle and food to metals, assuming they were available. Gold and silver were prime candidates to become the predecessors of money , primarily due to their durability, portability, and way to divide them into smaller money. 

First Coins From 1,000 BC Onward

It took a while before the first forms of “coinage” started to appear. Traces of such currencies have been discovered in China, the Aegean Sea region, and India. All coins were very different from one another, which confirms all regions decided to utilize metals to exchange value on their own volition. 

Despite being introduced near 1,000 BC, it took until the 7th century BC before the actual standards of weight as money were introduced. By 500 BC, these standardized coins were used from Asia Minor to southern Italy. In this period, the first stamped coins started to appear, a trend that later became the new normal in the coin mining industry. 

By the 5th century BC, soldiers were the ones to receive payments in silver coins. All of this silver was mined in Attica through the use of slave labor. These events allowed the Athenian Empire to grow exponentially over the years.

Following their example, and the influx of physical coins in Southern Italy, the Roman Empire established its own mint several centuries later. This mint was located in the Temple of Moneta. The Roman Mint remained there for four centuries. The goddess’ name means both “money” and “mint”. Physical coins – in many different shapes and with many different human head on one side – have remained in use ever since.

Paper Money Comes Much Later

It is evident that the use of coins dominated the financial landscape globally for quite some time. In fact, it took until the 7th century AD before the first forms of paper money, or banknotes, entered circulation. Once again, it was China experimenting with this form of money. 

For merchants, it made perfect sense to ditch copper coinage in favor of a better solution. Coins were – and still are – cumbersome to transport in large quantities. As such, merchants and wholesalers in China decided to introduce receipts of deposit during the Tang Dynasty. In the modern world, they would be known as credit notes. 

While these notes never replaced coins during this Dynasty or the one following it, paper money was slowly gaining traction alongside the coins. It gained more recognition as a payment method throughout China by the 11th century. Once the government saw the advantages of printing money, they issued a monopoly right to issue these certificates of deposit. By early 12th century, the Chinese government issued as many banknotes per year as 26 million strings of coins combined. 

It is also during these times that some governments backed their physical coins and notes by precious metals. In the Delhi Sultanate, coins were still minted in copper and brass. Their value would be exchanged with gold and silver reserves in the imperial treasury. 

13th Century European Paper Money

By the time the 13th century came about, Europe became much more acquainted with paper currency. This influence was primarily directed by travelers such as Marco Polo. His voyages to faraway countries allowed him to tell tales of how paper money made an impact in China and other parts of Asia.

Interestingly enough, the use of paper currency wasn’t necessarily the same as using bills of currency. Instead, the first focus lied on utilizing promissory notes. It was a way of avoiding the transportation of vast sums of coins. 

Initially, a promissory note would belong to an individual, as it would be registered to them. Later on, any holder of such a note could have the associated value paid to them if they requested it. In a way, this is the precursor of banknotes as society knew later on, albeit in a slightly more crude format. 

Contrary to what some might believe, the actual banknotes never appeared until the 17th century. Several other forms of payment certainly made an impact in between, yet they all had their own setbacks, making them unwieldy in the long run. 

JP Buntinx
JP Buntinx
JP Buntinx is passionate about cryptocurrencies, fintech, blockchain, and finance. He currently resides in Belgium.


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