What is money? When was money invented? Who invented money? The history of money is fascinating and goes back thousands of years. From the early days of bartering to the first metal coins and eventually the first paper money, money has always had an important impact on the way we function as a society.
In this guide we’ll go into detail about the history of money and how human beings have advanced from the barter economy to a complex financial system with several forms of currency. Keep reading for a comprehensive overview or use the links below to go to a specific section.
What is Money?
Interestingly enough, money often has no intrinsic value. Instead, money is an object that has a value placed on it, which allows for the trade of goods and services. Some money, such as metal coins, has actual value in terms of the materials used. However, paper money is more common in the modern world and typically has no real value. Throughout the evolution of money, currency has taken several different forms.
When Was Money Invented?
Before money was invented, people bartered for goods and services. It wasn’t until about 5,000 years ago that the Mesopotamian people created the shekel, which is considered the first known form of currency. Gold and silver coins date back to around 650 to 600 B.C. when stamped coins were used to pay armies. Some evidence suggests that metal coins may be as old as 1250 B.C.
What Was Used Before Money Was Invented?
When there was no currency, people traded goods and services for what they needed. One farmer might trade livestock for vegetables, while another may trade labor or lumber for livestock. These transactions were the early building blocks of our modern economy and would go on to create the future of money the world knows today.
History of Bartering
The history of bartering dates all the way back to 6000 B.C. when Mesopotamian tribes introduced the concept to the Phoenicians. Goods were exchanged for each other in the absence of money, including things like tea, salt, weapons and food. As time went on, bartering continued to evolve, with Colonial Americans trading pelts, crops and muskets.
First Metal Money - Coins
The first metal money dates back to 1000 B.C. China. These coins were made from stamped pieces of valuable metal, such as bronze and copper. Early iterations of coins were also used by ancient Greeks, starting around 650 B.C.
Over time, these coins would evolve to be made from the silver and gold we associate with money today. Coins were a huge milestone in the history of money because they were one of the first currencies that allowed people to pay by count (number of coins) rather than weight.
Throughout history, there have been lots of different coins used in different regions. In about 500 B.C., the first round coins were created and stamped with gods and emperors for authenticity. In 800 AD, Charlemagne issued the silver penny, which was the standard coin in Western Europe from 794 to 1200 A.D.
By the mid-13th century, the shilling and pound became widely used to describe larger amounts of pennies. As the value of currency has changed over the years, the creation of larger forms of currency has been an important part of the history of money.
First Paper Money
While the first paper money was created in China in 700 to 800 A.D., it would be a long time before paper currency was commonly used. According to Brittanica.com, the first country to use paper money was China, but it was only used until about 1455. The lighter weight of paper money allowed for international trade, which created both problems—distrust and currency wars—and opportunities—the ability to trade in new places for new goods.
After China stopped using its paper money during the mid-15th century, coins once again became the most popular form of money in the country and in the world.
Bills of Exchange
Eventually, bills of exchange became a common part of the world economy. A bill of exchange is essentially a written order that one person or group will pay a specified amount of money on demand. A bill of exchange can be used to settle an account in international trade, which was one of the early uses of this order.
The creation of paper money would eventually lead to currency wars, which occur when leaders of different nations attempt to devalue their own currency. In turn, this increases demand and helps stimulate their economy. While this still occurs in today’s foreign exchange market, the signature of a currency war is the fact that several nations are involved in the devaluing of other nations’ currencies. However, currency wars can have negative consequences for the countries involved, including currency volatility.
The Introduction of Banks
The first banks were started by the Roman Empire around 1800 B.C. These banks offered loans and accepted deposits from individuals, but would later disappear with the collapse of the empire. By the turn of the 19th century, banks had become respectable organizations within communities and learned the concept of fractional reserve banking. Since individuals didn’t all withdraw all their money at once, banks learned that they could loan more money than they actually had, which was a huge step in the history of money.
The first bank in the U.S., The Bank of the United States, was established in 1791.
The Gold Standard
In 1816, gold was made the standard of value in the country of England. What this means is that each banknote represented a certain amount of gold, so only a limited number of banknotes can be printed. This gave previously unbacked currency some semblance of value and stability. By 1900, the United States had followed suit with the Gold Standard Act. While this would lead to the U.S. establishing the central bank that plays an important role in the economy today, the Gold Standard ended in the 1930s due to the Depression and the devaluation of gold.
Modern Day Money
Now that you have a better understanding of the history of currency, let’s take a look at how it’s used today.
Today, money has taken the form of everything from the U.S. dollar to cryptocurrencies like Bitcoin. Thanks to the creation of modern-day money, buying, selling, and trading is easier than it’s ever been.
Credit Cards & Debit Cards
When it comes to convenience, credit cards and debit cards are popular choices. A debit card is loaded with a set amount of money from your bank account, with money being removed from your account after each purchase you make.
Credit cards are a little different in the sense that they don’t carry a balance that you have to put in. Instead, lenders can choose a credit limit to set on your card, allowing you to spend up to a certain amount before you have to start paying it back to continue using your card. Credit cards were first issued to consumers in the 1920s and have grown in popularity ever since. In 2020, credit cards were the most commonly used payment method in the U.S.
Money used to be exchanged physically, whether people paid with coins or paper money. However, with the Internet boom and growth of eCommerce, online payments have increasingly become more convenient.
Today, online payments are one of the most popular ways to pay for goods and services. With online payments, you can simply enter a credit or debit card number on a website and pay for the goods you want. Online payments can also be made using a bank account number and routing number, but that process can take several days. When you make online payments through a debit or credit card, your card is typically charged right away.
In the 90s, digital currency tried and failed to get off the ground, but in the 2000s things have changed, allowing it to grow in popularity and in widespread use. In fact, digital currencies such as cryptocurrency and virtual currency play an important role in the economy today. These currencies have a value assigned to them just like any other type of money, with billions of dollars in digital money being transferred all the time. Bitcoin was one of the first and biggest forms of digital currency, but virtual currencies and other crypto options are starting to become more popular as well.
Written by Joshua Ritchie