The terms money and currency are often used interchangeably. But several theories suggest they are not identical. According to some theories, money is inherently an intangible concept. Currency, on the other hand, is the physical or tangible manifestation of the intangible concept of money.
According to this theory, money cannot be touched or smelled. Currency is the coin, note, object, or physical representation that is presented in the form of money. The basic form of money is numbers while the basic form of currency is paper banknotes, coins, or plastic cards like credit or debit cards. Though this distinction between money and currency is important in some contexts, for the purposes of this article, the terms are used interchangeably.
- Money is a medium of exchange with a recognized value that was adopted to make it easier for people to trade products and services with each other.
- The history of money crisscrosses the world as various cultures recognized the need to simplify trade by introducing a single, portable token of value into the process.
- People bartered before the world began using money.
- The world’s oldest known coin minting site was located in China, which began striking spade coins sometime around 640 BCE.
- Since then, the world adopted banknotes and moved into digital forms of payment, including virtual currencies.
Understanding the History of Money
What Is Money?
Money doesn't always have value whether it's represented by a seashell, a metal coin, a piece of paper, or a string of code mined electronically by a computer. With global wealth estimated to be about $463.6 trillion at the end of 2022, the value of money depends on the importance that people place on it as a medium of exchange, a unit of measurement, and a storehouse for wealth.
Money allows people to trade goods and services indirectly. It helps communicate the price of goods and provides individuals with a way to store their wealth. It is valuable as a unit of account—a socially accepted standard by which things are priced and with which payment is accepted. However, both the usage and form of money have evolved throughout history.
From Bartering to Currency
Money has been part of human history for at least the past 5,000 years in some form or another. Before that time, historians generally agree that a system of bartering was likely used. Bartering is a direct trade of goods and services.
For example, a farmer may exchange a bushel of wheat for a pair of shoes from a shoemaker. However, these arrangements take time. If you exchange an axe as part of an agreement in which the other party is supposed to kill a woolly mammoth, you have to find someone who thinks the tool is a fair trade for having to face down the 12-foot tusks of a mammoth. If this doesn't work, you would have to alter the deal until someone agreed to the terms.
A type of currency slowly developed over the centuries that involved easily traded items like animal skins, salt, and weapons. These traded goods served as the medium of exchange even though the value of each of these items was still negotiable in many cases. This system of trading spread across the world and still survives today in some parts of the globe.
One of the greatest achievements of the introduction of money was the increased speed at which business, whether it involved mammoth slaying or monument-building, could be done.
In early August 2021, Chinese archaeologists with the State University of Zhengzhou announced the discovery of the world’s oldest known, securely dated coin minting site in Guanzhuang in Henan Province, China. A mint is a facility where currency is created. Sometime around 640 BCE, this facility began striking spade coins, one of the first standardized forms of metal coinage.
Millions of coins are circulating in the United States. As many as 47,250 coins are minted per minute at the Philadelphia Mint while 40,500 coins are produced per minute by the Denver Mint.
First Official Currency Is Minted
Meanwhile, further west during this era, sixth-century BCE Greek poet Xenophanes, quoted by the historian Herodotus, ascribed the invention of metal coinage to the Lydians. In 600 BCE, Lydia's King Alyattes minted what is believed to be the first official currency, the Lydian stater.
The coins were made from electrum, a mixture of silver and gold that occurs naturally, and the coins were stamped with pictures that acted as denominations. In the streets of Sardis, in approximately 600 BCE, a clay jar might cost you two owls and a snake.
Lydia's currency helped the country increase both its internal and external trading systems, making it one of the richest empires in Asia Minor. Today, when someone says, "as rich as Croesus", they are referring to the last Lydian king who minted the first gold coin.
Transition to Paper Currency
During 1260 CE, the Yuan dynasty of China moved from coins to paper money. By the time Marco Polo, a Venetian merchant, explorer, and writer who traveled through Asia along the Silk Road, visited China in approximately 1271 CE, the emperor of China had a good handle on both the money supply and its various denominations. In fact, in the place where modern American bills say, "In God We Trust," the Chinese inscription at that time warned: "Those who are counterfeiting will be beheaded."
Parts of Europe still used metal coins as their sole form of currency until the 16th century. Colonial acquisitions of new territories via European conquest provided new sources of precious metals and enabled European nations to keep minting a greater quantity of coins.
But banks eventually started using paper banknotes for depositors and borrowers to carry around in place of metal coins. These notes could be taken to the bank at any time and exchanged for their face value in metal, usually silver or gold, coins. This paper money could be used to buy goods and services. In this way, it operated much like currency does today in the modern world. But it was issued by banks and private institutions rather than the government, which is now responsible for issuing currency in most countries.
The first paper currency issued by European governments was actually issued by their colonial governments in North America. Because shipments between Europe and the North American colonies took a long time, colonies often ran out of cash. Instead of going back to a barter system, the colonial governments issued IOUs that traded as currency. The first instance was in Canada (then a French colony) in 1685 when soldiers were issued playing cards denominated and signed by the governor to use as cash instead of coins from France.
The gold standard was established in the 1870s. Under this rule, currency printing was permitted based on the amount of gold a country had in its reserves.
The Emergence of Currency Wars
The shift to paper money in Europe increased the amount of international trade that could occur. Banks and the ruling classes started buying currencies from other nations and created the first currency market. The stability of a particular monarchy or government affected the value of the country's currency, and thus, that country's ability to trade on an increasingly international currency market.
The competition between countries often led to currency wars, where competing countries would try to change the value of the competitor's currency by driving it up and making the enemy's goods too expensive, by driving it down and reducing the enemy's buying power (and ability to pay for a war), or by eliminating the currency completely.
The 21st century gave rise to a novel form of payment activated with the touch of your finger. Mobile payments refer to money used to pay for goods and services. They can also be used to transfer money to another individual, such as a family member or friend. This can all be done using a portable electronic device, such as a smartphone or tablet device.
This form of payment first came to prominence in Asia and Europe before moving over to North America. From payments via text message, the technology evolved to allow checks to be deposited using the camera app on smart devices.
Mobile payment services like Apple Pay and Google Pay are vying for retailers to accept their platforms for point-of-sale payments. There are also apps dedicated to this method of payment, including Venmo and PayPal.
Virtual currencies are only available in electronic form. As digital representations of money, this type of currency is stored and traded using computer applications or specially designated software. The appeal of virtual currency is that it offers the promise of lower transaction fees than traditional online payment mechanisms do and is operated by decentralized authorities, unlike government-issued currencies.
Bitcoin quickly became the standard for virtual currencies. It was released in 2009 by the pseudonymous Satoshi Nakamoto, All of the world's Bitcoin was worth just over $522.5 billion. Keep in mind, though, that virtual currencies like Bitcoin have no physical coinage because they are traded on exchanges.
Although Bitcoin remains the most popular and most expensive one, other virtual currencies have hit the market. They include Ethereum, XRP, and Dogecoin.
How Long Has Money Been Around, and What Were the First Forms of Value Exchange?
Money has been part of human history for at least the past 5,000 years in some form or another. Historians generally agree that a system of bartering was likely used before this time. Bartering involves the direct trade of goods and services. For instance, a farmer may exchange a bushel of wheat for a pair of shoes from a shoemaker.
When and Where Did Coin Minting Begin?
The world’s oldest known, securely dated coin minting site was located at Guanzhuang in the Henan Province of China. The mint began striking spade coins sometime around 640 BCE, likely the first standardized metal coinage.
When Were Coins Replaced by Paper Money?
The Chinese moved from coins to paper money around 700 CE. By the time Marco Polo visited China in approximately 1271 CE, the emperor of China had a good handle on both the money supply and its various denominations.
The Bottom Line
The history of money is still being written. The system of exchange has moved from swapping animal skins to minting coins to printing paper money, and today, we appear to be on the cusp of a massive shift to electronic transactions. Ancient transaction forms have been co-opted: for example, bartering still occurs on the margins in some markets such as the business-to-business (B2B) space and some consumer services. The monetary system will surely continue evolving as long as humans require a medium of exchange.