One may wonder "who invented money?" and "when was money invented?" Neither question is easy to answer. Much like writing, both questions are asking for a stable, defined answer to something that evolved in several different places throughout the world.
Money and language have much in common, as scholars David Orrell and Roman Chlupatý discuss in The Evolution of Money (2016). In their introduction to the text, Orrell and Chlupatý note that "both money and writing are a way of using symbols to describe the world," and that "like language, money is based on social conventions." Therefore, common currencies, like the Euro, are portrayed as a unifying tool, even as money just as often will drive people apart.
But, given the hopes that a common currency will unify groups, common forms of currency have been established throughout human history as a way to create social cohesion in newly developed civilizations. The following sections describe the rise of money in ancient civilizations, followed by an overview of the modern history of money.
Ancient Currency
Scholars typically identify the earliest forms of money to be livestock and grains exchanged for goods or services in a relatively standardized way and thus moved beyond simple bartering. Livestock and grains as money appear throughout numerous early cultures as far back as 9000–6000 BCE.
At the time Genesis, the first book in the Hebrew Bible, was composed (approx. 1400–1000 BCE), the societies of the ancient Levant were in the midst of a transition from livestock and grain as money to the use of weighted metals as money. This is evidenced by passages such as: "Now [Abraham] was very rich in cattle, silver, and gold."
Bronze cowrie shells slowly replaced natural cowrie shells as money in ancient China.
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In ancient Asia and Africa, scholars have identified cowrie shells from c. 1200 BCE that were used as an early form of money as well. At about the same time throughout ancient China, many people also began to use metal coins for money.
The use of metals for coins quickly gained popularity. By 500 BCE, coins appeared in places throughout the Roman and Persian empires, including in places such as present-day Turkey and Greece.
China was also the first to create a lighter, more flexible form of currency. First, around 118 BCE, leather money, decorated along its borders, was used in China. Paper money was introduced during the reign of Emperor Zhenzong of Song (宋真宗; r. 997–1022 CE).
Paper money did not spread far beyond China until the 18th and 19th centuries and, even then, paper money was more often a promissory note, a kind of "I-owe-you" receipt. These receipts acknowledged that one would later be paid in gold or silver currency.
Modern Money's Evolution
The American gold coin certificate, like this one from 1922, was a precursor to modern US paper currency.
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In Europe, paper money began to move on from the promissory note form when the "gold standard" was introduced. In 1821, the United Kingdom began to tie its currency to a real amount of gold, ensuring the specific value of any money that they issued.
Even as the gold standard helped to ensure that money has a specific value, it does not remove all of the issues with currency systems. Depressions and inflation can still occur, just as they did throughout the 20th century.
To try to alleviate these issues, places such as the United States created new areas of their government. In the US, the Federal Reserve System was created in 1913 to regulate banks and try to maintain the stability of the currency system.
Still, the degree of harm caused by these depressions and inflation made many countries rethink their use of the gold standard. Some countries began to abandon the gold standard following World War I, leading to the first "currency war."
In a currency war, countries compete to try to change the value of other currencies so that their goods are cheaper and easier to attain, reducing the purchasing power of other nations. Despite—and in some ways, because of—the currency wars, many countries abandoned the gold standard in the 1970s.
Modern money is much more than gold, paper, and coins. Credit cards, online payments, and cryptocurrencies have increased in popularity, especially in the past few decades. A brief timeline of the history of modern money is as follows.
- 1948–49: The first e-commerce transactions take place using telex, an international messaging system and one of the many precursors to the internet and online banking.
- 1950: The first credit cards, as one may understand the concept today, are developed by Diners Club, an American company founded by Ralph Schneider and Frank McNamara.
- 1967: ATMs (automatic teller machines) appear first in London, England, followed by other locations around the world.
- 1985: The Bank of Scotland creates the first system for electronic home banking.
- 1994: Stanford Credit Union creates the first online banking website.
- 2009: Bitcoin, a popular cryptocurrency, is created.
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FAQs
Money has evolved through different stages according to the time, place and circ*mstances. Some of the major stages through which money has evolved are as follows: (i) Commodity Money (ii) Metallic Money (iii) Paper Money (iv) Credit Money (v) Plastic Money.
What is the evolution of money pdf? ›
Commodity theory asserts that money has evolved spontaneously from one of the useful commodities through a long process of barter exchanges, and cartal theory argues that money was introduced by a communal agreement or political decree or legislative action that is external to the exchange process.
What is the evolutionary history of money? ›
The barter system likely originated 6,000 years ago. The first coin we know of is from the 7th century BC and the first paper money came into the world around 1020 AD. Eventually, medieval banking systems gave way to the gold standard, which in turn gave way to modern currency.
What is the conclusion of the evolution of money? ›
Conclusion. The evolution of money is proof of society's ability to adapt and innovate. From the barter system to the digital currencies of today, money has continually evolved to meet the changing needs of the world.
What are the five stages of the evolution of money? ›
Some of the major stages through which money has evolved are as follows: (i) Commodity Money (ii) Metallic Money (iii) Paper Money (iv) Credit Money (v) Plastic Money.
What is the life cycle of money? ›
Generally, financial life stages fall into three categories: wealth accumulation, preservation, and distribution. An individual's needs change through those stages of life. By understanding your savings, investment, and banking options, you will be better equipped to meet your money goals and needs during each stage.
What is the first stage of evolution of money? ›
Money, as we know it today, is the result of a long process. At the beginning, there was no money. People engaged in barter, the exchange of merchandise for merchandise, without value equivalence.
What was the first money invented? ›
The Mesopotamian civilization developed a large-scale economy based on commodity money. The shekel was the unit of weight and currency, first recorded c. 2150 BC, which was nominally equivalent to a specific weight of barley that was the preexisting and parallel form of currency.
Who invented money for kids? ›
No one knows for sure who first invented such money, but historians believe metal objects were first used as money as early as 5,000 B.C. Around 700 B.C., the Lydians became the first Western culture to make coins. Other countries and civilizations soon began to mint their own coins with specific values.
What did people use before money? ›
Before the creation of money, exchange took place in the form of barter, where people traded to get the goods and services they wanted. Two people, each having something the other wanted, would agree to trade one another. In economics, we call this a double coincidence of wants.
The British pound is the world's oldest currency still in use at around 1,200 years old. Dating back to Anglo-Saxon times, the pound has gone through many changes before evolving into the currency we recognise today. The British pound is both the oldest and one of the most traded currencies in the world.
How did money become digital? ›
Origins of digital currencies date back to the 1990s Dot-com bubble. Another known digital currency service was Liberty Reserve, founded in 2006; it lets users convert dollars or euros to Liberty Reserve Dollars or Euros, and exchange them freely with one another at a 1% fee.
What are the three main functions of money? ›
To summarize, money has taken many forms through the ages, but money consistently has three functions: store of value, unit of account, and medium of exchange. Modern economies use fiat money-money that is neither a commodity nor represented or "backed" by a commodity.
What is the summary of theory of money? ›
The quantity theory of money (often abbreviated QTM) is a hypothesis within monetary economics which states that the general price level of goods and services is directly proportional to the amount of money in circulation (i.e., the money supply), and that the causality runs from money to prices.
What is the future of money? ›
Q: What is the future of money? The future of money is expected to be heavily influenced by technology. Predictions include the rise of cashless societies, the growth of cryptocurrencies, the continued adoption of digital currencies, and the potential offering of a Central Bank Digital Currency (CBDC) by governments.
What is the oldest form of money? ›
The Mesopotamian civilization developed a large-scale economy based on commodity money. The shekel was the unit of weight and currency, first recorded c. 2150 BC, which was nominally equivalent to a specific weight of barley that was the preexisting and parallel form of currency.
What is the evolution of banking? ›
Religious temples became the earliest banks because they were seen as safe places to store money. Before long, temples got into the business of lending money at interest, much as modern banks do. By the 18th century, many governments gave banks a free hand to operate, based on the theories of economist Adam Smith.
What is the classification of money? ›
Classification of Money
There are four categories of money. They are fiat money, commodity money, fiduciary money, and commercial bank money.
