I am sure many of you have read the formal definition of money somewhere on the internet.
But have you wondered at the historical origins of this important tool that facilitates our day-to-day transactions?
Perhaps you wonder how cavemen survived without today’s fiat money.
Or perhaps you are thinking about how today’s fiat money, pieces of cotton fabric paper, can be of the same worth as the new house that you have just bought with it?
The discussion of the making of money and its distribution is an abstract one.
This is because monetary circulation is controlled by the central bank for reasons such as avoiding politics - the central bank is a financial institution independent from government intervention. It prints and distributes the money; it is the only authorized location to do so.
Back to the question about the worth of a house, or put simply, how does money hold value? The simple answer stresses the notion and belief that people have about the value of money.
We believe there is value in money and that money is indeed a store of value, and therefore, we use money to trade items.
But, this answer questions the longevity of money’s value; what if one day we all stop believing that money store value? Will the value disappear?
The answer is no, but not indefinitely. Indeed, fiat money is quite good at its job, being portable, light, and efficient and will remain at its post.
Money also has an interesting history, and it is difficult to trace the exact time and place of its origin.
Sources suggest that obsidian was one of the earliest materials used - that was before bartering took place as humans began agriculture. Bartering is essentially the trading of different goods, without the use of money.
For example, if I had a cow and wanted some tomatoes, I would find someone who grows tomatoes, who also wants a cow. It is without a doubt that this situation may be hard to find, as our wants are infinite and different.
This problem arises from the need of a double coincidence of wants. Therefore, along with having to carry the cow a long way for trading, this rendered bartering inefficient.
Soon enough, though, people realized the bigger problem: are the value of the exchanged goods equal? This led to the introduction of the “shekel” system - a unit of weight - whereby goods were weighed by their values.
Around and after that time, different parts of the world began using cowry shells. Then, it was the Chinese who were credited for the use of the earliest form of coins, and many nations followed. And in 118 BC, the first paper (leather) money was invented and issued in China.
Marco Polo, in China at the time, was credited for bringing the idea to Europe. All in all, forms of money have transformed a great deal over the decades and are still changing.
There are now different types of money, such as commodity (gold), fiat (what we generally refer to as legal tender). There are even cryptocurrencies, which act as a response and solution to the very abstract notion of money’s value.
In the wake of the financial crisis in 2008, Bitcoin emerged - the first and largest cryptocurrency platform. Online transactions with this currency are always anonymous, do not require the intervention of banks, and are not under the regulatory framework of any country.
With rapid technological advancements, we can expect the evolution of money to continue. Today, the process of transactions is made simpler than ever before, requiring just a scan of a QR code.
Nevertheless, it is essential and insightful to grasp a better understanding of the origins of money in order to understand how the monetary system works today.