History of Money: From barter to currency

In Antiquity, before the first coins were created, easily tradable objects such as animal skins, salt or weapons became currency and served as a means of exchange. Exchange trade became more and more widespread throughout the world. The invention of money took place even before the beginning of written history but we are unable to ascertain in which country it originated. This is due to the lack of sources and the changing pace of ancient civilisations. 

The oldest types of money are book money (debits and credits in the books) and exchange money (items that were used for barter). The earliest book money is the “Ishango bone” discovered near the source of the Nile in the Democratic Republic of Congo which was probably used to count and record the numerical system. Accounting records dating back to more than 7,000 years ago have also been found in Mesopotamia. These documents show lists of expenses and a record of goods received and sold.

Exchange money originated well before coins were invented. In Ancient Egypt, Babylon, India and China, clay tokens and other materials were found that acted as evidence of claims to goods placed in warehouses and could be exchanged as an object of trade. Metals (common and precious) were used in barter and monetary systems, laying the foundations for monetary systems. In Ancient Rome, rough bronze (“aes rude”) was used for barter exchange which took the form of a bronze weight.

The first coins have been discovered within the territory of China. A group of archaeologists from Zhengzhou State University discovered a mint located in Guanzhuang, Henan Province, where spade coins were minted. These were probably the first standardised metal coins and are considered to be the first coins created by human. 

During the same era in Ancient Greece, the first official currency was minted in the 6th century BC. This was the Lydian stater minted at the commission of the Lydian king ─ Alyattes (600 BC). The world’s first currency was minted from electrum, a mixture of silver and gold, and had images that acted as denominations. The existence of the currency became the catalyst for the development of Lydia which went down in history as one of the richest empires in Asia Minor. It was the name of the Lydian king Croesus, who amassed numerous riches and minted the first gold coin, that became synonymous with rich man. Hence the origin of the often-used phrase: “As rich as Croesus”. Ancient Sparta minted iron coins to discourage citizens from trading abroad. Other countries minted coins of gold and silver.

Despite the fact that the first coins were created in Lydia and Greece, it is the Phoenicians who are responsible for the spread of money-based trade. They were an ancient merchant people living in the Mediterranean basin. The Phoenicians disseminated money which became the foundation of their wealth. Thanks to the Phoenicians’ well-developed trade network, money spread across the globe. Money acquired a new function, in addition to being a means of payment it also became a symbol of power.

In the 13th century, gold coins began to be minted again in Europe. Frederick II is credited with the reintroduction of gold coins during the Crusades. In the 14th century, Europe switched from silver to gold which was used as a means of payment. Vienna made this change in 1328. In the 17th century, “plate money” was produced in Sweden from large plates of copper which were stamped with their value, as there was a shortage of precious metals.

How did coins come to be introduced in Europe to replace primary money? Merchants of the time realised that objects such as furs were poorly divisible and that grain varied in value according to the season. As a result, this led to the use of metals as a means of payment which initiated the development of money. Initially, people paid with metal bars or lumps of bullion but they were difficult to transport. So they began to be divided into balls which were later signed with the seals of the rulers, giving rise to coins. Coins were minted from alloys of various metals, to be created over time from gold and silver alloy only.

The Middle Ages are referred to as the “Dark Ages” but in terms of the development of monetary expansion it is closer to the Enlightenment. Techniques for minting coins were perfected which contributed to the development of trade. The right to produce money belonged to the ruler at the time and only occasionally could it be delegated to the clergy. 

In the Middle Ages, the so-called money merchants emerged to deal with currency exchange. At that time, problems such as counterfeiting of coins, manipulation of the bullion content and the large number of coin makers were faced. In the Middle Ages, the first bankers began to lead the way, allowing customers to deposit money at their place and withdraw it elsewhere on the basis of a deposit slip which became the prototype of banks. The first bank was established in 1156 in Venice, which was a catalyst for the development of the financial and credit system of medieval Europe. 

The spread of money became the subject of philosophical reflection. Saint Thomas Aquinas accepted trading and lending to Christians on the condition that the customer received a fair return. Nicolaus Copernicus, on the other hand, in his “Treatise On the Minting of Coin”, created the law of debasement of coinage .

The Chinese replaced coins with paper money around the 10th century and it did not become common in Europe until the 17th century. Banknotes followed the issuing of depository receipts by goldsmiths and bankers, which they used for settlement because they were more convenient than coins. This started the process that led to the spread of banknotes and the acceptance of the idea by government authorities. Banks also began to use paper notes which were more convenient than coins for customers or borrowers. Banknotes could be exchanged for silver or gold coins at any time. Money was becoming more and more popular and goods and services could be bought with it. Banks were then responsible for issuing money.

The first paper currency issued by European governments was issued by their colonial governments in North America. The reason for its issue was the lack of cash in the colonies, so the governments there issued IOUs which were exchanged as currency. In 1685, soldiers were provided with playing cards with the denomination and signature of the governor to use as cash instead of coins from France.

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