Ever wondered how did we come to trust rectangular pieces of paper, equal to spending 8-10 hours of work, daily?
The evolution of money has changed how households, businesses, and even governments are financed leading to the industrial and post-industrial economies existing today.
But, before we scratch the surface, let’s dive deeper into where it all started.
Previously, payments and receipts were recorded in a barter agreement in a non-formalized manner.
Trade was the core reason for the development of money; not only to hoard commodities but also as an indispensable part of one’s life. Humans had specific requirements, hence the need to evade the coincidence of wants was higher than ever.
The barter system is highly flawed and came to a close through formalized forms of money that we know now!
As communities grew, so did exchanges, further deepening and diversifying the money market.
The growth of civilizations led the rulers to impose taxes. This is when humans moved from barter to exchange tokens of value for trade. For example, Whale teeth were used as IOU. This further allowed humans to be free to trade, while also storing the purchasing power for the future.
However, as the economies turned even more dense, there was a need to move to more sophisticated forms of currency exchange.
Increased volumes of trade made currencies such as shells, barley, animal skins, salts, honey, or feather difficult to carry or split. Additionally, factors such as value, availability, lack of refrigeration, and transportation paved the way for a convenient alternative - metal coins.
Geographical diversity led to varieties of currencies such as alcohol, and cigarettes. In China, money in the name of tools and then knives were examples of precious metal money and also surprisingly gigantic limestones from the Yap island. Furthermore, the cowry shell was used for the longest time as commodity money.
Creativity and innovation led to the development of coins in civilizations such as ancient India, Sumer, Egypt, China, Mesopotamia, and Babylon. Rulers minted money from precious metals with their emblem on it. While the paper was developed in China, named Jiaozi, the British used tally sticks for the purpose.
This created a legitimized, hard-to-forge, portable, durable and divisible currency.
As huge amounts of precious coins became difficult to carry over long distances and with the possibility of counterfeit activities, civilizations began printing IOU certificates on paper. These certificates could be exchanged for gold or silver coins it represented.
Although, commerce and the economy grew has changed drastically, making it difficult to overlook its limitations.
Being easy to print, the paper was then pegged to a particular gold standard.
The existence of money grew to formalized forms of institutions.
One such example was during the modern Islamic age when financial tools such as cheques, transactional and savings accounts, exchange rates, bank loans, deposits, and transfers of debt and credit surfaced.
But as the needs grew, the world stopped keeping up with a fixed gold standard. Money, banking systems, and financial institutions continue to evolve as we speak.
Currently, money now transforms its existence from paper to binary digits on the screen and more!
