History of money

Money can be anything (coins, notes, gold) and it is used as payment for goods
and services. It is a medium of exchange.
A long time ago there was no such thing called as money. Then people used to
swap things i.e. exchange goods and services. For example: Ram had oranges
and needed Apples while Sham had apples and needed oranges. Then they
could exchange oranges and apples. Exchange of goods and services without
involving money is called barter
But what happens when

Nobody wanted your items. For example: Ram had oranges and wanted
mangoes. But Sham has apples and want oranges

The traders couldnt agree at how much they should trade/swap. For
example Sham wanted 3 oranges for one apple but Ram wanted to give 2
oranges for 1 apple.
Then instead of directly swapping one item for another people came up with
idea of using one thing for everything else. This was the beginning of money

Money as medium of exchange

Across the globe and in human history different things have been used as
money such as sea shells, cows, cigarettes, tobacco, beads, chocolates,
metals like copper, nickel, gold silver & paper. Timeline of money is shown
below

Timeline of money

Different things used as money over time

9000-6000 BC : The first people didnt buy goods from other people with
money. They used barter. Barter is the exchange of a good or service for
another good or service, a bag of rice for a bag of beans. This kind of exchange
started at the beginning of humankind and is still used today. From 9,000-6,000
B.C., livestock was often used as a unit of exchange. Later, as agriculture
developed, people used crops for barter. For example, one farmer could
exchange kg of apples for a kg of bananas. However, what if you couldnt agree
what something was worth in exchange or you didnt want what the other
person had. To solve that problem humans developed what is
called commodity money

Cow as Money
A commodity is a basic item used by almost everyone. In the past, salt, tea,
tobacco, cattle and seeds were commodities and therefore were once used as
money. However, using commodities as money had other problems. Carrying
bags of salt and other commodities was hard, and commodities were difficult to
store or were perishable. So people looked for other things to be used as
money
1200 BC Cowrie Shells: Shells of clams, called cowrie), were first used as
money in China. They were found in shallow waters in Indian & Pacific Oceans.
Till 20th century they were still being used in Africa. In inland areas of China
due to shortage of cowrie shells, cowries were made from various materials
such as bone, wood & metal.

Cowrie shell as money

1000 600 BC : Metal was more practical than other forms of primitive money:
it had a practical value (for use in jewellery, etc); it was small enough to
transport in ones pocket (unlike, say, an equally valuable horse); it did not die
like cattle; it was durable (i.e., it did not decay or break). Crude coins made
from non-precious metals. The first metal coins were actually cowrie shell
reproductions made of bronze or copper. China began minting them around
1,000 B.C.

Metal Coins
700 BC Precious Metal Coins: In Western World coins were made in Lydia,
modern day Turkey. The coins, unlike in China, were made from gold and silver.
They were stamped with Gods & s Greeks and Romans also started making
coins. Coins became popular throughout Europe as trading grew. Coins
containing precious metals were traded because it held value. For example, the
value of the coin depended upon the amount of gold and silver it contained.

Greece coins
Due to shortage of copper, Chinese started using paper money way back in
618-907 A.D. In 1300 AD money was crude paper made from mulberry bark &
Chinese placed the emperors seal. Around 1454 Chinese abandoned paper
money. It reappeared in Europe & America in 1600 A.D.
Goldsmiths receipts: In Europe during 1600s Many London merchants would
deposit their gold in the secure storage rooms of the citys goldsmiths for
safekeeping; the goldsmiths would give receipts for the deposits. As more
goldsmiths began to issue these paper receipts, it became possible to take a
receipt to any smith and cash it in, even if this smith wasnt the smith who
originally wrote the receipt. Eventually, people were using the receipts among
themselves, trading them for goods and services. People grew accustomed to
this paper currency, and they began to trust its value. However, this is not much
of an abstraction, because the receipts could be cashed in for gold, which had
a real value.
Fractional reserves The goldsmiths (like modern-day bankers) began to lend
their depositors gold. At any one time, there would not be enough gold to cover
all of those deposit slips. Thus, the slips were not worth the gold which they
represented; they were worth only as much as the smiths promise to redeem
them .

Paper money:

The first European banknotes were printed in Sweden. In 1644 copper plate
money was minted. In 1657, Stockholms Banco suggested a new monetary unit
a temporary Kreditivsedlar (credit paper). It printed the first banknotes in
1661. The bank very quickly got into trouble for printing too many bank notes.

First bank note

In 1816, England made gold a benchmark of value. This meant that the value of
currency was pegged to a certain number of ounces of gold. In the late 1800s,
the U.S. government issued gold and silver certificates.

US Gold certificate
World War I and World War II made countries distance from the gold standard.
Till then the government could print as much money as the amount of
gold/silver it had. To finance the wars, rebuild and to recover the damage to the
economy, governments wanted to print more money. So they dropped the
concept of exchanging paper money for gold or silver. The world moved to the
paper money where notes have no value otherwise, but for what they will buy. It
can be offered in payment and by law it could not be refused as a
settlement. In other words paper money is legal tender. Such Money cannot
be redeemed for a commodity, such as gold or silver.

Electronic money (also known as e-money, electronic cash, electronic currency,

digital money, digital cash or digital currency) refers to money or scrip which is
exchanged only electronically. Typically, this involves the use of computer
networks, the internet and digital stored value systems. Electronic Funds
Transfer (EFT) and direct deposit are all examples of electronic