History of money

Money has become an integral part of our lives. This is an attempt to glance through the history of money in few minute reading based on my understanding of readings of a book or on the internet.

Barter system

Barter system is the first system humans used to transact commodities between people. Let’s say there are 2 tribes using barter system for transactions. The first tribe offers wheat in exchange for diamonds from the second tribe. It might sound alien now to exchange diamonds with wheat as they are of different value. But considering the first tribe is rich in wheat and they needed diamonds for jewellery whereas the second tribe is close to diamond mine but unable to have proper food for tribe. It made total sense to transact using this system at that time.

Minting coins

Barter system had inefficiencies as we are exchanging items with different values across different tribes making it difficult as it can result in conflicts .

It will be easier to transact if we have a common measure for each item and that became a natural step when each tribe started minting coins. Each tribe assign value to each item and transact in their coins. This system is pretty much followed even today in different form. Coins minted using metals like gold, silver, copper based on availability and popularity at that time.

Promissory notes & Banking

Minting coins is an initial step towards standardization but there are parameters like metal, size of coin and weight brings in differences between tribes. Add to this, metal availability can limit the volume of transactions and cannot scale as more people transact.

Tribes came together to bring in common authority (known as bank now) who can issue notes with the same value that everyone agreed upon. These promissory notes are easy to generate and used across tribes. Now, each tribe priced each item and establishing market system where they can sell and buy using this common notes.

Currency

Tribes or communities became states and then countries, a problem that each tribe used to have become a national problem. Now, governments had to standardize promissory note system across country instead of having their own system across multiple states. Instead of allowing everyone to print their own promissory notes, government started printed promissory notes called currency and circulate across the country for citizens to transact. Though the government doesn’t do it, there will be a central bank which takes care of printing and circulating currency. Examples of this central bank are Reserve Bank of India, Federal Bank (US).

Digital currency & future

Internet provided older systems as a platform to scale up and currencies are no exception. As we get transact more with cards over cash, we are moving to digital currency. But as all nations move towards cashless economies, it will be a progressive step to have common currency without any metal or paper footprint.

To conclude

Throughout the history, money has evolved to resolve human conflicts and make transactions smoother and faster at a large scale. It will be better for us as humans to treat money as a means to resolve instead of creating differences among us.

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