The history of the word money

The history of money concerns the development throughout time of systems that provide the functions of money. Such systems can be understood as means of trading wealth indirectly; not directly as with bartering. Money is a mechanism that facilitates this process.

Money may take a physical form as in coins and notes, or may exist as a written or electronic account. It may have intrinsic value (commodity money), be legally exchangeable for something with intrinsic value (representative money), or only have nominal value (fiat money).^[1]

Overview[edit]

The invention of money took place before the beginning of written history.^[2][3] Consequently, any story of how money first developed is mostly based on conjecture and logical inference.

The significant evidence establishes many things were traded in ancient markets that could be described as a medium of exchange. These included livestock and grain–things directly useful in themselves – but also merely attractive items such as cowrie shells or beads^{[citation needed]} were exchanged for more useful commodities. However, such exchanges would be better described as barter, and the common bartering of a particular commodity (especially when the commodity items are not fungible) does not technically make that commodity «money» or a «commodity money» like the shekel – which was both a coin representing a specific weight of barley, and the weight of that sack of barley.^[4]

Due to the complexities of ancient history (ancient civilizations developing at different paces and not keeping accurate records or having their records destroyed), and because the ancient origins of economic systems precede written history, it is impossible to trace the true origin of the invention of money. Further, evidence in the histories^[5] supports the idea that money has taken two main forms divided into the broad categories of money of account (debits and credits on ledgers) and money of exchange (tangible media of exchange made from clay, leather, paper, bamboo, metal, etc.).

As «money of account» depends on the ability to record a count, the tally stick was a significant development. The oldest of these dates from the Aurignacian, about 30,000 years ago.^[6][7] The 20,000-year-old Ishango Bone – found near one of the sources of the Nile in the Democratic Republic of Congo – seems to use matched tally marks on the thigh bone of a baboon for correspondence counting. Accounting records – in the monetary system sense of the term accounting – dating back more than 7,000 years have been found in Mesopotamia,^[8] and documents from ancient Mesopotamia show lists of expenditures, and goods received and traded and the history of accounting evidences that money of account pre-dates the use of coinage by several thousand years. David Graeber proposes that money as a unit of account was invented when the unquantifiable obligation «I owe you one» transformed into the quantifiable notion of «I owe you one unit of something». In this view, money emerged first as money of account and only later took the form of money of exchange.^[9][10]

Regarding money of exchange, the use of representative money historically pre-dates the invention of coinage as well.^[2] In the ancient empires of Egypt, Babylon, India and China, the temples and palaces often had commodity warehouses which made use of clay tokens^[2] and other materials which served as evidence of a claim upon a portion of the goods stored in the warehouses.^[11] There isn’t any concrete evidence these kinds of tokens were used for trade, however, only for administration and accounting.^[2]

While not the oldest form of money of exchange, various metals (both common and precious metals) were also used in both barter systems and monetary systems and the historical use of metals provides some of the clearest illustration of how the barter systems gave birth to monetary systems. The Romans’ use of bronze, while not among the more ancient examples, is well-documented, and it illustrates this transition clearly. First, the «aes rude» (rough bronze) was used. This was a heavy weight of unmeasured bronze used in what was probably a barter system—the barter-ability of the bronze was related exclusively to its usefulness in metalsmithing and it was bartered with the intent of being turned into tools. The next historical step was bronze in bars that had a 5-pound pre-measured weight (presumably to make barter easier and more fair), called «aes signatum» (signed bronze), which is where debate arises between if this is still the barter system or now a monetary system. Finally, there is a clear break from the use of bronze in barter into its undebatable use as money because of lighter measures of bronze not intended to be used as anything other than coinage for transactions. The aes grave (heavy bronze) (or As) is the start of the use of coins in Rome, but not the oldest known example of metal coinage.

Gold and silver have been the most common forms of money throughout history. In many languages, such as Spanish, French, Hebrew and Italian, the word for silver is still directly related to the word for money. Sometimes other metals were used. For instance, Ancient Sparta minted coins from iron to discourage its citizens from engaging in foreign trade.^[12] In the early 17th century Sweden lacked precious metals, and so produced «plate money»: large slabs of copper 50 cm or more in length and width, stamped with indications of their value.

Gold coins began to be minted again in Europe in the 13th century. Frederick II is credited with having reintroduced gold coins during the Crusades. During the 14th century Europe changed from use of silver in currency to minting of gold.^[13][14] Vienna made this change in 1328.^[13]

Metal-based coins had the advantage of carrying their value within the coins themselves – on the other hand, they induced manipulations, such as the clipping of coins to remove some of the precious metal. A greater problem was the simultaneous co-existence of gold, silver and copper coins in Europe. The exchange rates between the metals varied with supply and demand. For instance the gold guinea coin began to rise against the silver crown in England in the 1670s and 1680s. Consequently, silver was exported from England in exchange for gold imports. The effect was worsened with Asian traders not sharing the European appreciation of gold altogether – gold left Asia and silver left Europe in quantities European observers like Isaac Newton, Master of the Royal Mint observed with unease.^[15]

Stability came when national banks guaranteed to change silver money into gold at a fixed rate; it did, however, not come easily. The Bank of England risked a national financial catastrophe in the 1730s when customers demanded their money be changed into gold in a moment of crisis. Eventually London’s merchants saved the bank and the nation with financial guarantees.^{[citation needed]}

Another step in the evolution of money was the change from a coin being a unit of weight to being a unit of value. A distinction could be made between its commodity value and its specie value. The difference in these values is seigniorage.^[16][17]

Theories of money[edit]

The earliest ideas included Aristotle’s «metallist» and Plato’s «chartalist» concepts, which Joseph Schumpeter integrated into his own theory of money as forms of classification.^[18] Especially, the Austrian economist attempted to develop a catallactic theory of money out of Claim Theory.^[19] Schumpeter’s theory had several themes but the most important of these involve the notions that money can be analyzed from the viewpoint of social accounting and that it is also firmly connected to the theory of value and price.^[20]

There are at least two theories of what money is, and these can influence the interpretation of historical and archeological evidence of early monetary systems. The commodity theory of money (money of exchange) is preferred by those who wish to view money as a natural outgrowth of market activity.^[21] Others view the credit theory of money (money of account) as more plausible and may posit a key role for the state in establishing money. The Commodity theory is more widely held and much of this article is written from that point of view.^[22] Overall, the different theories of money developed by economists largely focus on functions, use, and management of money.^[18]

Other theorists also note that the status of a particular form of money always depends on the status ascribed to it by humans and by society.^[23] For instance, gold may be seen as valuable in one society but not in another or that a bank note is merely a piece of paper until it is agreed that it has monetary value.^[23]

Money supply[edit]

In modern times economists have sought to classify the different types of money supply. The different measures of the money supply have been classified by various central banks, using the prefix «M». The supply classifications often depend on how narrowly a supply is specified, for example the «M»s may range from M0 (narrowest) to M3 (broadest). The classifications depend on the particular policy formulation used:

• M0: In some countries, such as the United Kingdom, M0 includes bank reserves, so M0 is referred to as the monetary base, or narrow money.^[24]
• MB: is referred to as the monetary base or total currency. This is the base from which other forms of money (like checking deposits, listed below) are created and is traditionally the most liquid measure of the money supply.^[25]
• M1: Bank reserves are not included in M1.
• M2: Represents M1 and «close substitutes» for M1.^[26] M2 is a broader classification of money than M1. M2 is a key economic indicator used to forecast inflation.^[27]
• M3: M2 plus large and long-term deposits. Since 2006, M3 is no longer published by the U.S. central bank.^[28] However, there are still estimates produced by various private institutions.
• MZM: Money with zero maturity. It measures the supply of financial assets redeemable at par on demand. Velocity of MZM is historically a relatively accurate predictor of inflation.^[29][30][31]

Technologies[edit]

Assaying[edit]

Assaying is analysis of the chemical composition of metals. The discovery of the touchstone^[when?] for assaying helped the popularisation of metal-based commodity money and coinage.^{[citation needed]} Any soft metal, such as gold, can be tested for purity on a touchstone. As a result, the use of gold for as commodity money spread from Asia Minor, where it first gained wide usage.^{[dubious – discuss]}

A touchstone allows the amount of gold in a sample of an alloy to been estimated. In turn this allows the alloy’s purity to be estimated. This allows coins with a uniform amount of gold to be created. Coins were typically minted by governments and then stamped with an emblem that guaranteed the weight and value of the metal. However, as well as intrinsic value coins had a face value. Sometimes governments would reduce the amount of precious metal in a coin (reducing the intrinsic value) and assert the same face value, this practice is known as debasement.^{[citation needed]}

Prehistory: predecessors of money and its emergence[edit]

Non-monetary exchange[edit]

Gifting and debt[edit]

There is no evidence, historical or contemporary, of a society in which barter is the main mode of exchange;^[32]
instead, non-monetary societies operated largely along the principles of gift economy and debt.^[33][34][35] When barter did in fact occur, it was usually between either complete strangers or potential enemies.^[36]

Barter[edit]

With barter, an individual possessing any surplus of value, such as a measure of grain or a quantity of livestock, could directly exchange it for something perceived to have similar or greater value or utility, such as a clay pot or a tool, however, the capacity to carry out barter transactions is limited in that it depends on a coincidence of wants. For example, a farmer has to find someone who not only wants the grain he produced but who could also offer something in return that the farmer wants.

Hypothesis of barter as the origin of money[edit]

In Politics Book 1:9^[37] (c. 350 BC) the Greek philosopher Aristotle contemplated the nature of money. He considered that every object has two uses: the original purpose for which the object was designed, and as an item to sell or barter.^[38] The assignment of monetary value to an otherwise insignificant object such as a coin or promissory note arises as people acquired a psychological capacity to place trust in each other and in external authority within barter exchange.^[39][40] Finding people to barter with is a time-consuming process; Austrian economist Carl Menger hypothesised that this reason was a driving force in the creation of monetary systems – people seeking a way to stop wasting their time looking for someone to barter with.^[41]

In his book Debt: The First 5,000 Years, anthropologist David Graeber argues against the suggestion that money was invented to replace barter.^[42] The problem with this version of history, he suggests, is the lack of any supporting evidence. His research indicates that gift economies were common, at least at the beginnings of the first agrarian societies, when humans used elaborate credit systems. Graeber proposes that money as a unit of account was invented the moment when the unquantifiable obligation «I owe you one» transformed into the quantifiable notion of «I owe you one unit of something». In this view, money emerged first as credit and only later acquired the functions of a medium of exchange and a store of value.^[9][10] Graeber’s criticism partly relies on and follows that made by A. Mitchell Innes in his 1913 article «What is money?». Innes refutes the barter theory of money, by examining historic evidence and showing that early coins never were of consistent value nor of more or less consistent metal content. Therefore, he concludes that sales is not exchange of goods for some universal commodity, but an exchange for credit. He argues that «credit and credit alone is money».^[43] Anthropologist Caroline Humphrey examines the available ethnographic data and concludes that «No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing».^[32]

Economists Robert P. Murphy and George Selgin replied to Graeber saying that the barter hypothesis is consistent with economic principles, and a barter system would be too brief to leave a permanent record.^[44][45] John Alexander Smith from Bella Caledonia said that in this exchange Graeber is the one acting as a scientist by trying to falsify the barter hypotheses, while Selgin is taking a theological stance by taking the hypothesis as truth revealed from authority.^[46]

Gift economy[edit]

In a gift economy, valuable goods and services are regularly given without any explicit agreement for immediate or future rewards (i.e. there is no formal quid pro quo).^[47] Ideally, simultaneous or recurring giving serves to circulate and redistribute valuables within the community.

There are various social theories concerning gift economies. Some consider the gifts to be a form of reciprocal altruism, where relationships are created through this type of exchange.^[48] Another interpretation is that implicit «I owe you» debt^[49] and social status are awarded in return for the «gifts».^[50] Consider for example, the sharing of food in some hunter-gatherer societies, where food-sharing is a safeguard against the failure of any individual’s daily foraging. This custom may reflect altruism, it may be a form of informal insurance, or may bring with it social status or other benefits.

Emergence of money[edit]

Anthropologists have noted many cases of ‘primitive’ societies using what looks to us very like money but for non-commercial purposes, indeed commercial use may have been prohibited:

Often, such currencies are never used to buy and sell anything at all. Instead, they are used to create, maintain, and otherwise reorganize relations between people: to arrange marriages, establish the paternity of children, head off feuds, console mourners at funerals, seek forgiveness in the case of crimes, negotiate treaties, acquire followers—almost anything but trade in yams, shovels, pigs, or jewelry.^[51]

This suggests that the basic idea of money may have long preceded its application to commercial trade.

After the domestication of cattle and the start of cultivation of crops in 9000–6000 BC, livestock and plant products were used as money.^[52] However, it is in the nature of agricultural production that things take time to reach fruition. The farmer may need to buy things that he cannot pay for immediately. Thus the idea of debt and credit was introduced, and a need to record and track it arose.

The establishment of the first cities in Mesopotamia (c. 3000 BCE) provided the infrastructure for the next simplest form of money of account—asset-backed credit or Representative money. Farmers would deposit their grain in the temple which recorded the deposit on clay tablets and gave the farmer a receipt in the form of a clay token which they could then use to pay fees or other debts to the temple.^[2] Since the bulk of the deposits in the temple were of the main staple, barley, a fixed quantity of barley came to be used as a unit of account.^[53]

Aristotle’s opinion of the creation of money of exchange as a new thing in society is:

When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily came into use.^[54]

Trading with foreigners required a form of money which was not tied to the local temple or economy, money that carried its value with it. A third, proxy, commodity that would mediate exchanges which could not be settled with direct barter was the solution. Which commodity would be used was a matter of agreement between the two parties, but as trade links expanded and the number of parties involved increased the number of acceptable proxies would have decreased. Ultimately, one or two commodities were converged on in each trading zone, the most common being gold and silver.

This process was independent of the local monetary system so in some cases societies may have used money of exchange before developing a local money of account. In societies where foreign trade was rare money of exchange may have appeared much later than money of account.

In early Mesopotamia copper was used in trade for a while but was soon superseded by silver. The temple (which financed and controlled most foreign trade) fixed exchange rates between barley and silver, and other important commodities, which enabled payment using any of them. It also enabled the extensive use of accounting in managing the whole economy, which led to the development of writing and thus the beginning of history.^[55]

Bronze Age: commodity money, credit and debt[edit]

Many cultures around the world developed the use of commodity money, that is, objects that have value in themselves as well as value in their use as money.^[56] Ancient China, Africa, and India used cowry shells.

The Mesopotamian civilization developed a large-scale economy based on commodity money. The shekel was the unit of weight and currency, first recorded c. 3000 BC,^{[dubious – discuss]} which was nominally equivalent to a specific weight of barley that was the preexisting and parallel form of currency.^[4][57] The Babylonians and their neighboring city states later developed the earliest system of economics as we think of it today, in terms of rules on debt,^[49] legal contracts and law codes relating to business practices and private property. Money emerged when the increasing complexity of transactions made it useful.^[58][59]

The Code of Hammurabi, the best-preserved ancient law code, was created c. 1760 BC (middle chronology) in ancient Babylon. It was enacted by the sixth Babylonian king, Hammurabi. Earlier collections of laws include the code of Ur-Nammu, king of Ur (c. 2050 BC), the Code of Eshnunna (c. 1930 BC) and the code of Lipit-Ishtar of Isin (c. 1870 BC).^[5] These law codes formalized the role of money in civil society. They set amounts of interest on debt, fines for «wrongdoing», and compensation in money for various infractions of formalized law.

It has long been assumed that metals, where available, were favored for use as proto-money over such commodities as cattle, cowry shells, or salt, because metals are at once durable, portable, and easily divisible.^[60] The use of gold as proto-money has been traced back to the fourth millennium BC when the Egyptians used gold bars of a set weight as a medium of exchange,^{[citation needed]} as had been done earlier in Mesopotamia with silver bars.^{[citation needed]}

The first mention in the Bible of the use of money is in the Book of Genesis^[61] in reference to criteria for the circumcision of a bought slave. Later, the Cave of Machpelah is purchased (with silver^[62][63]) by Abraham, some time after 1985 BC, although scholars believe the book was edited in the 6th or 5th centuries BC.^{[64][65][66][67]}

1000 BC – 400 AD[edit]

First coins[edit]

Main article: Coin

From about 1000 BC, money in the form of small knives and spades made of bronze was in use in China during the Zhou dynasty, with cast bronze replicas of cowrie shells in use before this. The first manufactured actual coins seem to have appeared separately in India, China, and the cities around the Aegean Sea 7th century BC.^[68] While these Aegean coins were stamped (heated and hammered with insignia), the Indian coins (from the Ganges river valley) were punched metal disks, and Chinese coins (first developed in the Great Plain) were cast bronze with holes in the center to be strung together. The different forms and metallurgical processes imply a separate development.

All modern coins, in turn, are descended from the coins that appear to have been invented in the kingdom of Lydia in Asia Minor somewhere around 7th century BC and that spread throughout Greece in the following centuries: disk-shaped, made of gold, silver, bronze or imitations thereof, with both sides bearing an image produced by stamping; one side is often a human head.^[69]

Maybe the first ruler in the Mediterranean known to have officially set standards of weight and money was Pheidon.^[70] Minting occurred in the late 7th century BC amongst the Greek cities of Asia Minor, spreading to the Greek islands of the Aegean and to the south of Italy by 500 BC.^[71] The first stamped money (having the mark of some authority in the form of a picture or words) can be seen in the Bibliothèque Nationale in Paris. It is an electrum stater, coined at Aegina island. This coin^[72] dates to about 7th century BC.^[73]

Herodotus dated the introduction of coins to Italy to the Etruscans of Populonia in about 550 BC.^[74]

Other coins made of electrum (a naturally occurring alloy of silver and gold) were manufactured on a larger scale about 7th century BC in Lydia (on the coast of what is now Turkey).^[75] Similar coinage was adopted and manufactured to their own standards in nearby cities of Ionia, including Mytilene and Phokaia (using coins of electrum) and Aegina (using silver) during the 7th century BC, and soon became adopted in mainland Greece, and the Persian Empire (after it incorporated Lydia in 547 BC).

The use and export of silver coinage, along with soldiers paid in coins, contributed to the Athenian Empire’s dominance of the region in the 5th century BC. The silver used was mined in southern Attica at Laurium and Thorikos by a huge workforce of slave labour. A major silver vein discovery at Laurium in 483 BC led to the huge expansion of the Athenian military fleet.

The worship of Moneta is recorded by Livy with the temple built in the time of Rome 413 (123)^{[clarification needed]}; a temple consecrated to the same goddess was built in the earlier part of the 4th century (perhaps the same temple).^[76][77][78] For four centuries the temple contained the mint of Rome.^[79][71] The name of the goddess thus became the source of numerous words in English and the Romance languages, including the words «money» and «mint»

Roman banking system[edit]

This section needs expansion. You can help by adding to it. (August 2017)

400–1450[edit]

Medieval coins and moneys of account[edit]

Charlemagne, in 800 AD, implemented a series of reforms upon becoming «Holy Roman Emperor», including the issuance of a standard coin, the silver penny. Between 794 and 1200 the penny was the only denomination of coin in Western Europe. Minted without oversight by bishops, cities, feudal lords and fiefdoms, by 1160, coins in Venice contained only 0.05g of silver, while England’s coins were minted at 1.3g. Large coins were introduced in the mid-13th century. In England, a dozen pennies was called a «shilling» and twenty shillings a «pound».^[80]

Debasement of coin was widespread. Significant periods of debasement took place in 1340–60 and 1417–29, when no small coins were minted, and by the 15th century the issuance of small coin was further restricted by government restrictions and even prohibitions. With the exception of the Great Debasement, England’s coins were consistently minted from sterling silver (silver content of 92.5%). A lower quality of silver with more copper mixed in, used in Barcelona, was called «billion».^[80]

First paper money[edit]

Paper money was introduced in Song dynasty China during the 11th century.^[81] The development of the banknote began in the seventh century, with local issues of paper currency. Its roots were in merchant receipts of deposit during the Tang dynasty (618–907), as merchants and wholesalers desired to avoid the heavy bulk of copper coinage in large commercial transactions.^[82][83][84] The issue of credit notes is often for a limited duration, and at some discount to the promised amount later. The jiaozi nevertheless did not replace coins during the Song Dynasty; paper money was used alongside the coins. The central government soon observed the economic advantages of printing paper money, issuing a monopoly right of several of the deposit shops to the issuance of these certificates of deposit.^[85] By the early 12th century, the amount of banknotes issued in a single year amounted to an annual rate of 26 million strings of cash coins.^[86]

In the 13th century, paper money became known in Europe through the accounts of travelers, such as Marco Polo and William of Rubruck.^[87] Marco Polo’s account of paper money during the Yuan dynasty is the subject of a chapter of his book, The Travels of Marco Polo, titled «How the Great Kaan Causeth the Bark of Trees, Made into Something Like Paper, to Pass for Money All Over his Country.»^[88] In medieval Italy and Flanders, because of the insecurity and impracticality of transporting large sums of money over long distances, money traders started using promissory notes. In the beginning these were personally registered, but they soon became a written order to pay the amount to whoever had it in their possession.^[89] These notes can be seen as a predecessor to regular banknotes.^[90]

Trade bills of exchange[edit]

Bills of exchange became prevalent with the expansion of European trade toward the end of the Middle Ages. A flourishing Italian wholesale trade in cloth, woolen clothing, wine, tin and other commodities was heavily dependent on credit for its rapid expansion. Goods were supplied to a buyer against a bill of exchange, which constituted the buyer’s promise to make payment at some specified future date. Provided that the buyer was reputable or the bill was endorsed by a credible guarantor, the seller could then present the bill to a merchant banker and redeem it in money at a discounted value before it actually became due. The main purpose of these bills nevertheless was, that traveling with cash was particularly dangerous at the time. A deposit could be made with a banker in one town, in turn a bill of exchange was handed out, that could be redeemed in another town.

These bills could also be used as a form of payment by the seller to make additional purchases from his own suppliers. Thus, the bills – an early form of credit – became both a medium of exchange and a medium for storage of value. Like the loans made by the Egyptian grain banks, this trade credit became a significant source for the creation of new money. In England, bills of exchange became an important form of credit and money during last quarter of the 18th century and the first quarter of the 19th century before banknotes, checks and cash credit lines were widely available.^[91]

Islamic Golden Age[edit]

At around the same time in the medieval Islamic world, a vigorous monetary economy was created during the 7th–12th centuries on the basis of the expanding levels of circulation of a stable high-value currency (the dinar). Innovations introduced by Muslim economists, traders and merchants include the earliest uses of credit,^[92] cheques, promissory notes,^[93] savings accounts, transactional accounts, loaning, trusts, exchange rates, the transfer of credit and debt,^[94] and banking institutions for loans and deposits.^[94]

Indian subcontinent[edit]

In the Indian subcontinent, Sher Shah Suri (1540–1545), introduced a silver coin called a rupiya, weighing 178 grams. Its use was continued by the Mughal Empire.^[95] The history of the rupee traces back to Ancient India circa 3rd century BC. Ancient India was one of the earliest issuers of coins in the world,^[96] along with the Lydian staters, several other Middle Eastern coinages and the Chinese wen.
The term is from rūpya, a Sanskrit term for silver coin,^[97] from Sanskrit rūpa, beautiful form.^[98]

The imperial taka was officially introduced by the monetary reforms of Muhammad bin Tughluq, the emperor of the Delhi Sultanate, in 1329. It was modeled as representative money, a concept pioneered as paper money by the Mongols in China and Persia. The tanka was minted in copper and brass. Its value was exchanged with gold and silver reserves in the imperial treasury. The currency was introduced due to the shortage of metals.^[99]

Tallies[edit]

The acceptance of symbolic forms of money meant that a symbol could be used to represent something of value that was available in physical storage somewhere else in space, such as grain in the warehouse; or something of value that would be available later, such as a promissory note or bill of exchange, a document ordering someone to pay a certain sum of money to another on a specific date or when certain conditions have been fulfilled.

In the 12th century, the English monarchy introduced an early version of the bill of exchange in the form of a notched piece of wood known as a tally stick. Tallies originally came into use at a time when paper was rare and costly, but their use persisted until the early 19th century, even after paper money had become prevalent. The notches denoted various amounts of taxes payable to the Crown. Initially tallies were simply a form of receipt to the taxpayer at the time of rendering his dues. As the revenue department became more efficient, they began issuing tallies to denote a promise of the tax assessee to make future tax payments at specified times during the year. Each tally consisted of a matching pair – one stick was given to the assessee at the time of assessment representing the amount of taxes to be paid later, and the other held by the Treasury representing the amount of taxes to be collected at a future date.

The Treasury discovered that these tallies could also be used to create money. When the Crown had exhausted its current resources, it could use the tally receipts representing future tax payments due to the Crown as a form of payment to its own creditors, who in turn could either collect the tax revenue directly from those assessed or use the same tally to pay their own taxes to the government. The tallies could also be sold to other parties in exchange for gold or silver coin at a discount reflecting the length of time remaining until the tax was due for payment. Thus, the tallies became an accepted medium of exchange for some types of transactions and an accepted store of value. Like the girobanks before it, the Treasury soon realized that it could also issue tallies that were not backed by any specific assessment of taxes. By doing so, the Treasury created new money that was backed by public trust and confidence in the monarchy rather than by specific revenue receipts.^[100]

1450–1971[edit]

Goldsmith bankers[edit]

Goldsmiths in England had been craftsmen, bullion merchants, money changers, and money lenders since the 16th century. But they were not the first to act as financial intermediaries; in the early 17th century, the scriveners were the first to keep deposits for the express purpose of relending them.^[101] Merchants and traders had amassed huge hoards of gold and entrusted their wealth to the Royal Mint for storage. In 1640 King Charles I seized the private gold stored in the mint as a forced loan (which was to be paid back over time). Thereafter merchants preferred to store their gold with the goldsmiths of London, who possessed private vaults, and charged a fee for that service. In exchange for each deposit of precious metal, the goldsmiths issued receipts certifying the quantity and purity of the metal they held as a bailee (i.e., in trust). These receipts could not be assigned (only the original depositor could collect the stored goods). Gradually the goldsmiths took over the function of the scriveners of relending on behalf of a depositor and also developed modern banking practices; promissory notes were issued for money deposited which by custom and/or law was a loan to the goldsmith,^[102] i.e., the depositor expressly allowed the goldsmith to use the money for any purpose including advances to his customers. The goldsmith charged no fee, or even paid interest on these deposits. Since the promissory notes were payable on demand, and the advances (loans) to the goldsmith’s customers were repayable over a longer time period, this was an early form of fractional reserve banking. The promissory notes developed into an assignable instrument, which could circulate as a safe and convenient form of money backed by the goldsmith’s promise to pay.^[103] Hence goldsmiths could advance loans in the form of gold money, or in the form of promissory notes, or in the form of checking accounts.^[104] Gold deposits were relatively stable, often remaining with the goldsmith for years on end, so there was little risk of default so long as public trust in the goldsmith’s integrity and financial soundness was maintained. Thus, the goldsmiths of London became the forerunners of British banking and prominent creators of new money based on credit.

First European banknotes[edit]

The first European banknotes were issued by Stockholms Banco, a predecessor of Sweden’s central bank Sveriges Riksbank, in 1661.^[105] These replaced the copper-plates being used instead as a means of payment,^[106] although in 1664 the bank ran out of coins to redeem notes and ceased operating in the same year.

Inspired by the success of the London goldsmiths, some of whom became the forerunners of great English banks, banks began issuing paper notes quite properly termed «banknotes», which circulated in the same way that government-issued currency circulates today. In England this practice continued up to 1694. Scottish banks continued issuing notes until 1850, and still do issue banknotes backed by Bank of England notes. In the United States, this practice continued through the 19th century; at one time there were more than 5,000 different types of banknotes issued by various commercial banks in America. Only the notes issued by the largest, most creditworthy banks were widely accepted. The scrip of smaller, lesser-known institutions circulated locally. Farther from home it was only accepted at a discounted rate, if at all. The proliferation of types of money went hand in hand with a multiplication in the number of financial institutions.

These banknotes were a form of representative money which could be converted into gold or silver by application at the bank. Since banks issued notes far in excess of the gold and silver they kept on deposit, sudden loss of public confidence in a bank could precipitate mass redemption of banknotes and result in bankruptcy.

In India the earliest paper money was issued by Bank of Hindostan (1770– 1832), General Bank of Bengal and Bihar (1773–75), and Bengal Bank (1784–91).^[107]

The use of banknotes issued by private commercial banks as legal tender has gradually been replaced by the issuance of bank notes authorized and controlled by national governments. The Bank of England was granted sole rights to issue banknotes in England after 1694. In the United States, the Federal Reserve Bank was granted similar rights after its establishment in 1913. Until recently, these government-authorized currencies were forms of representative money, since they were partially backed by gold or silver and were theoretically convertible into gold or silver.

1971–present[edit]

In 1971, United States President Richard Nixon announced that the US dollar would not be directly convertible to Gold anymore. This measure effectively destroyed the Bretton Woods system by removing one of its key components, in what came to be known as the Nixon shock. Since then, the US dollar, and thus all national currencies, are free-floating currencies. Additionally, international, national and local money is now dominated by virtual credit rather than real bullion.^[9]

Payment cards[edit]

In the late 20th century, payment cards such as credit cards and debit cards became the dominant mode of consumer payment in the First World. The Bankamericard, launched in 1958, became the first third-party credit card to acquire widespread use and be accepted in shops and stores all over the United States, soon followed by the Mastercard and the American Express.^[108] Since 1980, Credit Card companies are exempt from state usury laws, and so can charge any interest rate they see fit.^[109] Outside America, other payment cards became more popular than credit cards, such as France’s Carte Bleue.^[110]

Digital currency[edit]

The development of computer technology in the second part of the twentieth century allowed money to be represented digitally. By 1990, in the United States, all money transferred between its central bank and commercial banks was in electronic form. By the 2000s most money existed as digital currency in banks databases.^[111] In 2012, by number of transaction, 20 to 58 percent of transactions were electronic (dependent on country).^[112] The benefit of digital currency is that it allows for easier, faster, and more flexible payments.^[113]

Cryptocurrencies[edit]

In 2008, Bitcoin was proposed by an unknown author/s under the pseudonym of Satoshi Nakamoto. It was implemented the same year. Its use of cryptography allowed the currency to have a trustless, non-fungible and tamper resistant distributed ledger called a blockchain. It became the first widely used decentralized, peer-to-peer, cryptocurrency.^[114][115] Other comparable systems had been proposed since the 1980s.^[116] The protocol proposed by Nakamoto solved what is known as the double-spending problem without the need of a trusted third-party.

Since Bitcoin’s inception, thousands of other cryptocurrencies have been introduced.

See also[edit]

References[edit]

Further reading[edit]

• Alvarado, Ruben, Follow the Money: The Money Trail Through History, Wordbridge 2013.
• Bowman, John S. Columbia Chronologies of Asian History and Culture. (Columbia UP, 2000). ISBN 0231110049
• Dean, Austin. China and the End of Global Silver, 1873–1937 (Cornell UP, 2020).
• Del Mar, Alexander. (1885). A History of Money in Ancient Countries from the Earliest Times to the Present. London: George Bell & Sons. ISBN 0-7661-9024-2
• Ebrey, Patricia Buckley, and Anne Walthall. East Asia: A Cultural, Social, and Political History. (Boston: Houghton Mifflin, 2006) ISBN 0618133844
• Eichengreen, Barry. Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 (Oxford UP, 1992).
• Eichengreen, Barry J., and Marc Flandreau, eds. The gold standard in theory and history (Psychology Press, 1997).
• Ferguson, Niall. The Ascent of Money — Financial History of the World (2009) online
• Gernet, Jacques (1962). Daily Life in China on the Eve of the Mongol Invasion, 1250–1276. Stanford: Stanford University Press. ISBN 0-8047-0720-0
• Jacob Goldstein (2020). Money: The True Story of a Made-Up Thing. Hachette Book. ISBN 978-0316417198.
• Irigoin, Alejandra. «The end of a silver era: the consequences of the breakdown of the Spanish Peso standard in China and the United States, 1780s-1850s.» Journal of World History (2009): 207–243. online
• Jevons, W. S. Money and the Mechanism of Exchange. (London: Macmillan, 1875), .
• Kwarteng, Kwasi. War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt (2014) online
• Menger, Carl, «On the Origin of Money»
• Richards, R. D. Early history of banking in England. London: R. S. King (1929).
• Sehgal, Kabir (2015). Coined: The Rich Life of Money and How Its History Has Shaped Us. Grand Central Publishing. ISBN 978-1455578528.
• Vilar, Pierre. A History of Gold and Money, 1450 to 1920 (1960). online
• Weatherford, Jack. The History of Money. (New York: Crown Publishers, 1997).
• The History Of Money For Kids

External links[edit]

• The Marteau Early 18th-Century Currency Converter A Platform of Research in Economic History.
• Historical Currency Conversion Page by Harold Marcuse. Focuses on converting German marks to US dollars since 1871 and inflating them to values today, but has much additional information on the history of currency exchange.
• Gold in US Geological Survey

Hello, dear readers of the financial magazine «RichPro.ru»! Today we’ll talk about money and its functions — what it is, what is the history of the origin of money, what types of money exist in our time.

By carefully studying the article from start to finish, you will also learn:

• what is the essence of money;
• who came up with the first money;
• what are the main functions of money;
• what properties do they possess;
• what is the role of money in the economy.

And at the end of the article you will find answers to the most popular questions on this topic.

So there you go!

Read about what money is, what is the history of the emergence of money, what functions they perform and what types there are — read in our issue

1. What is money — the definition and essence of money 💸

The topic of money worries a huge number of people. However, not everyone strives to understand in detail what it is and what their features are. At the same time, money is a fundamental concept in the financial economy. If we consider the concept from an encyclopedic point of view, the definition of money will be as follows:

Money Is a special type of product that has maximum liquidity. At the same time, the specificity of money lies in the fact that it does not carry any consumer value. But they are a universal medium of exchange — you can buy everything you need with them.

In fact, money is a commodity that everyone needs. At the same time, the majority wants to have it in as large a quantity as possible.

The main characteristics of money are as follows:

• are a tool for the exchange of goods and services;
• allow you to measure the value, that is, the value of any items sold;
• are a measure of measuring labor, as well as measuring the material value of produced goods and services.

Who invented the money — the history of the emergence of money

2. The history of the origin of money (from antiquity to the present) 📚

To the table of contents ↑

For a huge number of years, people have only used barter, changing the results of their labor for all the things they need. However, this option worked well only for small communities where everyone worked for the benefit of the whole community.

Gradually, with the development of relations between different territories, it became necessary to use some kind of universal unit, which everyone would be ready to exchange for any product. It is thanks to this that they were invented money.

2.1. Historical background, first exchange

Historians argue in which state the money from the metal was first used. Among the assumptions, first of all, stand out China, Persia и Lydian kingdom… This does not mean modern states, but only their historical predecessors, which existed thousands of years ago and have already disappeared from the face of the earth.

Today, modern humanity has only archaeological finds as confirmation, as well as a small number of records that have survived to our times. The first money was preceded by Alansthat are mentioned in the Bible.

Some historians admit that in any of the unnamed civilizations, metal money was used in circulation even earlier. However, it is unlikely that humanity will ever know about this.

At first, we used as a measure of value precious metal ingots… However, at this stage, it would be wrong to call them full-value money. In essence, this is the same exchange, but using jewelry as a means of exchange.

2.2. Who came up with the first money?

Most historians are inclined to believe that the first state to introduce money from metal into circulation was Lydian kingdom… This is confirmed by the finds of archaeologists, whose age is a little more 2 500 years.

There is also historical evidence that the first person who suggested using iron money was king darius… Due to this, trade relations have been significantly simplified.

Before the introduction of money, it was necessary to find someone who had the necessary goods, and then persuade him to exchange for things that the buyer had in stock. Thanks to the introduction of coins, it became possible to sell their products to the first person.

Already in those days, traders began to travel to other countries and spread the news. Thanks to money turned out to be very convenient and in itself was of practical value, they very quickly gained universal recognition.

However, already with the appearance of the first coins, people were faced with the problem of choosing which what to mint on them… Moreover, already during this period there appeared first counterfeiters.

2.3. The origin of the word «coin»

Many people ask themselves: what is the origin of the word coinwhat does it mean? Surprisingly, this concept is associated with the ancient Roman gods.

The first coins were minted in a temple dedicated to the ancient Roman goddess Juno. She had a title currency… It was this word that began to be used to refer to minted metal money. Gradually, the Latin word began to be used in many European countries.

The Romans constantly went on campaigns, trying to conquer the maximum number of territories. Thanks to this, the money spread almost throughout Europeas well as parts North africa… The barbarian tribes living in this territory had to adopt the history and culture, use the achievements of the Roman Empire.

This is precisely what historical data testifies to. But all the documents were written by the winners.

2.4. Theory of the origin of the first paper money

Archaeological excavations made it possible to find out that in China coins had rectangular shape… At the same time, it is completely unclear what is the reason for this difference. Moreover, the molten metal easily takes the shape of an oval. This is the closest thing to a round classic coin.

In China, during a certain historical period, difficulties arose with the extraction of metals. Therefore, it was not possible to ensure the minting of the number of coins sufficient to meet the demand for them. I had to find a way to solve this problem. Meanwhile, this region has been producing paper for thousands of years.

The state undertook to change banknotes for coins on demand. The same promise could be given to each other by people in the process of buying and selling (exchanging) goods.

The idea of ​​banknotes appealed to the rulers of many states. But in Europe it was introduced much later. The reason for this was China’s isolation from other countries.

In Russia and Europe, actively apply booms, which were used as paper bonds and banknotes, have become relatively recently — about 300 years ago… The reason for this decision was the huge weight of the wallet. To pay with coins for a large purchase, you had to carry huge bags with you.

2.5. The history of the creation and development of money — briefly

To summarize, we can highlight 6 types of moneythat replaced each other in the development of human civilization:

1. precious metal ingots;
2. the first metal money used in the Lydian kingdom;
3. ancient Roman coins;
4. Darius’s first money;
5. coins from China are rectangular;
6. vouchers — obligations and receipts on paper.

However, the development of money did not stop there either. Rapid globalization is characteristic of modern society. Computer technologies are gradually replacing paper documents. Today, it is no longer uncommon to make payments between people using electronic means.

Gradually, over time, the essence of physical money is erased from memory. However, both their introduction in the past and their gradual abandonment in modern conditions change the world for the better. Thanks to the development of the Internet and technology, the level of automation is growing significantly ↑. Therefore, the possibility of a complete rejection of coins and banknotes cannot be ruled out in the future.

In this way, without a doubt, the one who invented the money made a great contribution to history. However, the name of the only creator who could be thanked for this has not been brought to modern man. There is a possibility that the idea of ​​creating money appeared almost simultaneously in different parts of the world.

The main functions of money in the economy

3. Functions of money and their role in the economy — an overview of 6 main functions (briefly and clearly) 📝

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Gradually, with the development of civilized society, as well as trade relations, the functions of money continuously expanded. At first, they were only used to measure the value of various goods and services. Later, money began to fulfill a number of other important tasks for society.

Money function — this is a special expression of their role in the economy (economic activity of society).

So what is the function of money?

Function 1. Money as a measure of value

The function of money as a measure of value is formed in the process of pricing. It is money that helps determine the value of a product or service. Moreover, the universal equivalent helps to compare the value of different products of labor with each other.

Price Is an expression of the value of goods and services in the form of numbers. Its formation is carried out in accordance with the conditions for the manufacture of goods or services in accordance with the resources expended.

It was difficult to compare the cost of products without bringing them down to a certain scale. Any physical quantity is measured in appropriate units. In this case, the value can be measured in money.

After the introduction of the universal value equivalent, the need for complex calculations of the value of various goods and services disappeared.

In modern economics, prices are calculated separately for each product. In this case, you have to take into account all the resources spent — materials, labor costs, and so on.

The use as the main element for this helped to simplify the calculations monetary unit of the state… In some cases, when the national economy is unstable, the currency of other countries can be used.

Function 2. Money as a means of purchase

Acting as a purchasing agent, money is involved in servicing the trading process, which consists of buying and selling transactions.

In this financial process, money is means of circulation… They help to maintain a constant level of the turnover process.

During the sale process, there is often a time lag between receipt of the goods and the transfer of payment for it. This is because sellers can provide buyers with deferment… Accordingly, a new economic concept arises — credit.

Function 3. Money as a means of payment

The subsequent development of the economic structure led to the fact that money had another function. Gradually, finance took the place of a full-fledged means of payment.

At the moment, it is money that can be used to pay for products and fulfill other obligations.

Function 4. Switchgear

The essence of the distribution function is the transfer by one subject to another of a certain amount of money. In this case, the first does not receive any compensation.

This monetary function acts as the basis for the work of any state budget, as well as the distribution of income of organizations. Large social systems are always based precisely on the function in question.

Function 5. Money as a store of value and savings

Money is used not only to pay for various products, but also as the basis for wealth. In other words, financial resources can be saved as savings, donated. Moreover, money can be increased by investing in the creation of your own business, promising projects. We wrote about this in detail here.

This function of money determines absolutely the whole process of investing in society, the development of banks, stock exchanges, and various financial markets. In addition, it is she who provides the growth ↑ of the economy of a single state.

The situation in the modern world is taking shape in the format of economic globalization. In this case, the primary role is assigned to money as a currency.

Cash acts as a store of value, a working asset. It is important to understand that the real value of savings depends on the amount of liquidity.

The purchasing power of funds does not change only in the absence inflation… In reality, such an economy practically does not exist. Therefore, under the influence of inflation, money gradually loses its purchasing power.

In such conditions, making savings becomes meaningless. In this situation, the function is performed not by the national, but by the foreign currency. The money of those countries is selected, the economy of which is more stable.

Function 6. Money as a measure of international exchange

In the context of the globalization of the economy, within this function, money performs a number of tasks:

• currency conversion;
• formation of the balance of payments;
• formation of the exchange rate.

Money exchange between different states helps to form foreign trade relationsand international loans… In addition, this function allows you to help external partners.

Traditionally, world money is measured in reserve currencies. Today they are U.S. dollar ($), japanese yen (¥), and euro (€).

However, in case of mutual agreement, settlements between states can be carried out in other monetary units. In fact, absolutely any currency can perform the task of international settlements.

Table: «The main functions of money and their features»

Function	Description	The main features
1. Measure of value	Determining the value of products	Historically, this was the first function
2. Purchasing medium	They allow you to buy everything you need	Ensuring a stable turnover of goods and services
3. Means of payment	Allows you to pay off debts	The basis for the development of the credit system
4. Distribution	Transferring money without receiving a refund	Underlies government funding
5. Means of savings and savings	Allows you to make savings	The value of savings is determined by the state of the national economy
6. Measure of international exchange	Maintaining exchange between different states	The exchange rate is determined by the internal state of the national economy

Money functions with real-life examples

Types of money and their features

4. What types of money are there — TOP-8 types of money 📌

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In modern society, a large number of types of money are allocated. All of them include many subspecies, which explain the variety of their forms.

Money differs materialused for their manufacture, ways of handling, money supply accounting options, as well as the transition from one type to another. Historically 8 specific types of money, we will consider them in detail below.

Type 1. Commodity money

In the literature, you can find a variety of designations for commodity money. Otherwise they are called natural, real и valid… In this case, goods with intrinsic value and utility act as money.

This type unites products that were used to measure value in the initial period of the formation of the circulation of goods.

In different territories, they were used:

• wheat;
• salt;
• cattle;
• full-weight metal coins made of precious metals;
• furs and so on.

View 2. Secured money

Secured money upon their presentation, you can exchange for a certain amount of products or precious metals. In fact, secured money is a representative of commodity money.

View 3. Fiat money

Fiat money do not have any independent value, or it is incommensurable with the face value.

Such finances perform the functions of monetary funds due to the fact that the state undertakes to accept them as payment for tax contributions and fixes them as a legitimate means of payments on its own territory.

Now the basic form is Bank notes и non-cash moneyplaced on accounts with banking organizations.

View 4. Credit money

Credit money there is the right to demand in the future a specially formalized debt. In most cases, they are made by transferring securities that can be used to purchase everything you need, as well as to pay off your debts. Most often, payment is made on a specific date.

View 5. Good money

Good money have a commodity value to ensure their purchasing power. It acts as an adequate internal value determined by the principles of reproduction.

Such money includes 2 groups:

1. commodity;
2. metal.

View 6. Defective money

Defective money has no market value. There are several types of them. It all depends on the legislation regulating the circulation of banknotes.

• Secured goods or foreign exchange metals. Although they have no intrinsic value, they have representative… It is understood as the measure of purchasing value that is available in inferior secured money when they are exchanged for full value.
• Unsecured money are not based on any security, therefore they cannot be exchanged for precious metals. Such finances act as money solely because of their universal recognition and trust on the part of economic entities.
• Chartal are a separate type of defective money, which circulate in accordance with the laws, are recognized and supported by the state.

View 7. Cash

Cash is the money that the population holds in their hands. Such finance is engaged in servicing retail trade and personal payment and settlement transactions. In other words, cash are coins и Bank notespassed from hand to hand.

Type 8. Non-cash money

The bulk of finance, located on accounts in banking organizations, acts as non-cash money. You can also hear the designation of such money as deposit or credit.

Today, all these types of money coexist in society at the same time. All of them are of great importance for the economy.

5. What types of money exist in our time — a good example 🔎

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Here is a visual picture of the types of money in the modern world:

Types of money that currently exist

In short, in our time there are two types of money: наличные и non-cash.

✔ Cash — Is coins, paper money, credit money (bills, banknotes, checks).

✔ Non-cash money — funds that are on the accounts. They are divided into credit plastic cards, payment plastic cards и electronic (digital) money.

6. Popular forms of money 💎

To the table of contents ↑

The form of money is the external embodiment of certain types of finance. They differ primarily in the functions they perform. Below are detailed the most popular forms of money.

1) Metallic

From a large number of various commodity money, with the development of history, those of them that were made of precious metals gradually emerged. It was they who became the universal form.

Their advantage was that they were easily divided into a large number of parts and did not deteriorate over time. Such metals cost a lot at the same time and were widespread throughout the world.

At the end of VII century BC in Lydia (a country in Asia Minor) coins were invented. They were round ingots of precious metals, which were minted by the state. Coins quickly gained popularity and took the place of a universal medium of exchange for many civilizations.

Due to the fact that coins made of gold and silver had their own value, they were used in all states where the circulation of metallic money was introduced. Nevertheless, each country sought to mint its own coins. This process was a confirmation of the high status, as well as the sovereignty of the state.

At its core, metallic money refers to valid… Their nominal value usually corresponds to the value of the metals used in their production.

2) Paper

Historically, this form was introduced to replace the gold coins used. At first, paper money was produced by the state on a par with gold coins. To introduce them into everyday life, the state guaranteed an exchange on demand for gold coins.

The main feature of this form: the lack of independent value. At the same time, the state sets for them compulsory course.

Such money performs 2 functions:

1. act as a means of circulation;
2. are a means of payment.

Often, the state, in the face of a shortage of financial resources, decides to increase the issue of paper money, without taking into account the level of circulation of goods.

In the absence of exchange for precious metals, paper money is not suitable for performing the function of accumulation. Their surplus cannot be withdrawn from circulation on its own.

3) Credit

This form appeared in the process of development of the production of goods, when the purchase and sale of goods began to be carried out on terms of payment by installments. Implementation is functionally defined when money becomes a means of payment. Here they play the role of an obligation, the repayment of which is carried out at the agreed time.

Their distinctive feature: released into circulation in accordance with the actual needs of the turnover. The loan is issued with the provision of collateral to the lender. Certain types of stocks can act as it. In this case, the repayment of the loan is carried out by reducing the balance of existing values.

Ultimately, the amount of payment funds that are provided to the borrower is linked to the need for financial turnover in funds.

This form also does not possess own cost. Such money is a symbolic expression of it, enclosed in the goods provided as security when making a loan. Banking organizations usually issue credit money in the course of their lending operations.

4) Bill of exchange

A bill of exchange has historically become the first type of credit money that arose as a result of commercial transactions on terms of payment by installments.

Bill — this is an unconditional written obligation of the borrower to return a specific amount of money at a specified time in a specific place.

There are 2 types of bills:

• simple issued by the debtor;
• draft or bill of exchange issued by the lender and sent to the borrower for signing with a subsequent return to the lender.

Today also used:

• treasury, the release of which is carried out by the state in order to cover the budget deficit, as well as to eliminate cash gaps;
• friendly issued by one individual in favor of another for their accounting in a banking organization;
• bronzethat do not have commercial coverage.

In the case of acceptance, that is, the consent of the banking organization, the bill is considered accepted… Moreover, his payment guarantee increasing ↑.

The main features of bills are as follows:

1. abstractness, that is, the type of transaction is not indicated on such a security;
2. indisputability — means that the payment of the debt is mandatory, and in the case of drawing up an act of protest, enforcement measures can be used;
3. convertibility — a bill of exchange can be transferred to another person by affixing a transfer inscription on it on the reverse side, this allows the bill of exchange to be used for offsetting obligations;

Also, a feature of a bill is that it can only be used in wholesale trade, when the balance of mutual obligations is repaid in cash. In addition, a limited number of persons take part in the circulation of promissory notes.

5) Banknotes

Banknotes are credit money, the issue of which is carried out by the Central Bank of the country. You can highlight the features that distinguish them from bills. They are presented in the table.

Table: «Comparative characteristics of banknotes and bills»

Comparative characteristics	Bill	Bill
Who is issuing	Central bank	Individual entrepreneur
Urgency	Perpetual commitment	Urgent — on average for a period of 3 to 6 months
Warranty	State	Individual

At first, banknotes carried 2 collateral at once:

• commercial guarantee, since the release was carried out on the basis of bills, closely intertwined with the turnover of goods;
• gold guarantee provided an exchange for gold.

Banknotes that can be exchanged for metal are called classic… Their distinctive feature is the increased ↑ level of stability and reliability. For a comparison of classic banknotes with paper money, their main features are presented in the table below.

Table: «Comparative characteristics of paper money and classic banknotes»

Characterization	Classic banknote	Paper money
What function do they come from	Instrument of payment	Means of circulation
Emission method	Issued by the Central Bank	Issued by the Ministry of Finance
Recurrence	They return to the Central Bank when the term of the promissory note on which they are based ends	Do not return
Variability	When returned to the Central Bank, it changes to precious metals	Unchangeable

In the modern world, banknotes come into circulation through banks issuing loans to the state and other market participants, converting foreign currency into national currency.

Today there is no exchange of banknotes for precious metals. Moreover, they are not always provided with any goods.

Central banks of various countries issue banknotes of the legally established pattern and denomination. They act as the national currency in a particular state.

6) Deposit

Deposit money — these are entries in banks on accounts opened to customers. The emergence of such money occurs when the owner of the bill presents it for accounting. Instead of issuing banknotes, a financial organization opens an account, and a payment is made from it by debiting them.

This form of money can perform accumulation function through the accrual of interest, which is carried out in the event of a temporary transfer to the bank for use. They can also act measure of valueBut cannot be a means of circulation.

Like a bill of exchange, deposit money is of a dual nature. They are financial capital and at the same time act as a means of payment. The contradiction of deposit money, which consisted in the opposition of the functions of saving and payment, was resolved by dividing bank accounts into current и urgent.

7) Check

Check is a monetary document that contains an order from the owner of the bank account to pay the holder of this document the amount indicated in it.

There are several types of checks in the financial economy:

1. Nominal are written out for a specific person. Their owner has no right to transfer the check to anyone;
2. Order check issued to a specific person. However, its holder has the right to transfer documents to another person through endorsement;
3. Bearer — for such a check, payment is made to any person who presents it for payment;
4. Payment check used exclusively for non-cash payments;
5. Accepted checks — according to this document, the bank gives an acceptance, that is, consent, to make a payment in a certain amount.

The main essence of this form is as follows: checks can be a tool for receiving cash in a banking organization, a means of circulation, used for non-cash payments.

Cashless

In developed countries, a large share of funds in circulation is allocated to non-cash money, which is:

• entries on accounts opened with the Central Bank and its branches;
• deposits placed with commercial banks.

In essence, they do not act as a means of payment. but they can be converted into cash at any timethat are guaranteed by credit institutions.

In practice, this kind of money is used on an equal basis with cash. Moreover, they have a number of benefits before the latter.

9) Electronic

the end XX century was marked by the transition to a qualitatively new form of money, called electronic. The prerequisites for this were the widespread use of computer technology, as well as the development of the Internet.

Electronic money Is the storage in electronic format of monetary value by means of technical devices used to effect payments. Such devices do not imply the obligatory conduct of transactions through bank accounts and can act as a prepaid bearer instrument.

The money in question is an electronic obligation. They are stored on a special medium in the user’s access.

This form is based on deposit circulation. At the same time, initially the person who will make the payment makes a certain amount of credit money.

It is important to distinguish between 2 types of electronic money:

1. Fiat are expressed in the currency of a state, they are a type of currency of its payment system. At the legislative level, all citizens are obliged to accept them for payment.
2. Non-fats are the monetary unit of non-state payment systems. All actions with them are carried out in accordance with the rules of the payment systems issuing them.

Electronic money is becoming more widespread. Cash and checks are being replaced by credit cards, which are means of payment.

The most relevant properties of money are acceptability, stability of value, economy, duration of use, homogeneity, divisibility, portability. The main property of money is absolute liquidity.

7. The main properties of money 📊

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Money, despite its diversity, is a single instrument. It is through him that the implementation of economic relations in the modern world is carried out.

However, in order for them to become a real tool, certain requirements are put forward for money, which are largely determined by the level of development. This is what determines the evolution of finance.

Money meets the requirements of society only when it has several properties. The main ones are discussed in detail below.

Property 1. Acceptability

Once society realized the need for money, it had to decide what could be used as it. At the initial stage, this decision follows from financial practice. Gradually, people began to use certain objects for calculations. They have become the equivalent of value, that is, they have assumed the function of money.

In different societies at different stages of development, people chose their objects to use. Everything depended on the way of life and what people appreciated at the moment. As money could be used fur, cattle, salt, precious metalsand various beautiful or rare items.

It is acceptability that is an important condition for the use of a certain item as money. The decision of one person about what exactly to use as money is meaningless. In order for a thing to fulfill its purpose, a large number of people will have to be convinced of the possibility of using it instead of money.

Most of the goods used for payment had intrinsic value… It was determined by the possibility of their use for other purposes or by the demand for such items due to their rarity.

When the idea of ​​using money arises in society, people are ready to use objects that they have only exchange value… The latter is determined by the confidence that in the future this thing will also be used for calculations by the whole society.

However, even in modern times, when the balance of the economy is disturbed or there are obstacles in its operation, valuable goods can act as money. For example, the in Europe, after the end of World War II, people stopped believing in paper money. As a result, they were replaced Cigarette, hoseand chocolate.

Property 2. Cost stability

The stability of value is the main property that makes it possible for an item to act as a monetary instrument. The property in question is an essential characteristic of acceptability.

Any depreciating form of money is not capable of efficiently performing the functions of a means of payment and accumulation. In such a situation, most people will give up saving, as the purchasing power of money will fall. People will look for different ways to invest their money.

Stability of money, which has only exchange value, determined by the public’s confidence in the unchanged purchasing power. If such trust is violated, the stability of money can be lost due to the action inflation.

Money with intrinsic value are protected from the effects of inflation. But they can be negatively affected by changes in supply and demand for the underlying product. If the value decreases ↓, there will be a decrease ↓ and the purchasing power of the monetary unit.

The actions of counterfeiters also have an impact on the mass of money. When it is possible to produce counterfeit moneythat cannot be distinguished from the real ones, they will be used in circulation as genuine. If at the same time the amount of counterfeit money grows significantly ↑, the money supply in circulation will be inflated. This will ultimately lead to decrease ↓ value for money.

Gradually, with the growth of the need for accumulation, as well as the progress of payment relations, society had to abandon the use of those forms of money, the value of which was unstable. As a result, only gold, the value of which was unchanged, began to be recognized as money. The states that used gold money managed to achieve serious progress in the XNUMXth century.

With the further evolution of the economy and the formation of the global market, the stability available for precious metals became insufficient to provide the property in question. Supply and demand for the precious metal was in constant flux, which was reflected in the value of high-grade money.

Due to these prerequisites, a transition to the use of defective credit money… Certain efforts help the State and international bodies to maintain the stability of their value at the required value.

An important mechanism designed to solve such a problem is money-credit policy… It is implemented by the Central Bank of the country that issued the currency. It turns out that today in society one of the most serious tasks of the state is to maintain the stability of the currency value at the required level.

Property 3. Economy

Efficiency helps to reduce ↓ the costs that invariably accompany the production of money, and allows you to ensure money turnover.

At a time when money was full the solution of these most important problems was difficult, since the maximum increase in efficiency had its limits. The cost of making money depended on the price of the material used to make money. Eventually this led to the demonetization of gold and the creation defective money.

However, even now the problem of economy of money has not lost its relevance. Making modern money is quite costly for any state. This leads to gradually cash in circulation is displaced and replaced by deposit money, that is, non-cash.

But in order to ensure the turnover with a sufficient amount of such money, you also have to bear a number of costs. Costs are required for account maintenance, making payments, organization of settlements between banks and other organizational issues. To minimize such costs, the movement of non-cash funds began to be produced through electronic technology.

The scope of application of deposit money is constantly expanding. Despite this, not a single country in the world today is able to completely abandon cash.

Property 4. Possibility of long-term use

The principal way to achieve economy of money is the ability to use it for a long period of time. This is the next property of money. It was typical for high-grade money and is now relevant for cash. At the same time, there is no point in discussing deposit money within this property, since there is no wear on them.

In order for cash to be used for a long period of time, heavy-duty paper is used in its manufacture, which is resistant to wear and tear. Small money can be effectively minted in the form of metal coins.

Within the framework of the considered property, of great importance for paper money is wear resistancewhich assumes:

• maximum resistance to kinking. Money paper has to withstand thousands of times more double folds than regular paper.
• resistance to tearing and tearing of the edge also has a huge impact on the lifespan of the money.
• special quality paper. It should be white, opaque, smooth, should not change under the influence of the sun and light, the paint should adhere firmly to the money and not wear out.

The best level of these indicators is provided for linen and cotton paper.

Property 5. Uniformity

Uniformity — a requirement that applies to all forms of money, but not all of them provide it. The biggest problems with uniformity were observed when different commodities were used as money, since each unit had distinctive features.

This shortage of commodity money weakened somewhat when the transition to gold money took place. Such coins turned out to be quite homogeneous and interchangeable. The same number of coins was of equal value.

The principle of homogeneity of gold coins could be violated in several cases:

• if silver coins were also used in circulation at the same time;
• due to the varying degrees of wear and tear of gold coins;
• when in their manufacture some part of gold coins were used various admixtures of metals.

When monetary units of various qualities are used in circulation, all people strive to keep more high-quality ones. Accordingly, sellers of goods would try to accept only high quality monetary units for payment. There are always a number of differences in the intrinsic value of money that is not homogeneous.

The transition to inferior money helped to solve the problem of heterogeneity. However, the question could not be completely resolved, even though at first glance they look the same.

Upon closer examination, it becomes clear that certain types of defective money may be heterogeneous due to the different level of trust in their issuers.

In other words, in such money, heterogeneity can manifest itself in a difference in the degree of reliability.

Reliability deposit money also cannot be the same. This is due to the fact that each credit institution has its own level of liquidity and stability. This heterogeneity is most globally demonstrated during periods of economic crises.

Property 6. Severability

Also of great importance divisibility… It is practically impossible to carry out the purchase of small goods using large indivisible money.

When various objects acted as money, which had an intrinsic value, there was a significant problem associated with the loss of value in the process of dividing. The cost of each part turned out to be lower ↓ than it was in the whole. Moreover, some products (for example live cattle) cannot be divided into parts.

To make payments quickly without additional costs, money should be easily divided into a large number of parts. As a result, it becomes possible to deposit any amount as payment and at the same time receive a surplus in the form of change.

To ensure divisibility, the state issues money of various denominations. Moreover, the monetary unit is divided into several equal parts, in most cases into 100… Using this ratio, coins of various denominations are minted.

Property 7. Portability

They are of great importance for money. portability… It is important that they are convenient to carry and use in everyday life. The earliest forms of money were characterized by low ↓ portability, but in the process of improvement, each subsequent form of money became more and more convenient to use.

Modern cash in the form of banknotes and coins is characterized by a fairly high ↑ level of portability. However, the improvement process did not end there either. Implementation plastic cards allowed to accommodate almost any amount of money in an absolutely small volume.

As closely as possible to the properties presented above, money can perform its functions most efficiently.

8. FAQ — Frequently Asked Questions 💬

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Despite the seeming simplicity of the topic of money, a huge number of questions arise upon detailed study. So that you do not have to waste time searching, we traditionally answer the most popular of them.

Question 1. When and how did the first paper money appear in Russia?

In Russia, for the first time, paper money began to be used during the reign Catherine II, or rather in 1769 year. However, they were not much like modern ones. At its core, paper money of that time represents special bank obligations, which were formalized as receipt, confirming the right to receive coins.

The material for such money was made in Krasnoe Selo at a paper manufactory. Later production was moved to Tsarskoe Selo… The paper for the production of money already at that time had water marks… Also at that time, they were affixed with the final signature of officials. Money was printed in Senate Printing House.

Historically, the first paper money in our country was called banknotes… They had a face value 25, 50, 75 and 100 rubles.

The most important prerequisites for their appearance was the lack of silver mining, which was used to mint money. At that time, the basic monetary unit in Russia was silver ruble… Its cost corresponded to the price of the precious metal used.

Published 29 December 1976 year The manifesto argued that the decisive reason for the transition to the use of banknotes was the need to exchange copper coins for money that would be as comfortable as possible for transportation.

The money issued at the time was of poor quality. The reason for this was that low-grade paper was used for their manufacture. The most important elements that were depicted on the money are text and numbering. Since the image on the first money was very simple, they almost immediately began to be forged. This problem became especially acute during the war with Napoleon. At this time, Russian banknotes were printed on a machine that was imported from France.

In connection with a significant decrease ↓ in the value of the used banknotes, it was decided to introduce additional new banknotes.

Since 1818 by 1819 year were released new banknotes, the face value of which was 5, 10, 25, 50 and 100 rubles… This money is characterized by the use of watermarks with images of portraits and paintings of Russian artists. Therefore, it was much more difficult to forge them.

To maximize the level of protection of banknotes, gifted artists were involved in the production process, the latest technologies were used, as well as special machines. Such money remained in circulation until 1843 year.

Question 2. Why do people need money?

People value money very highly, often talk about it, dream of having as much of it as possible. Money gives people not only direct opportunities, but also additional meanings of life, which are of great importance to them.

The role of money in the life of the state and the person

There are several reasons why many people strive to become rich:

1. Security and control over the situation. A person is inevitably worried about what he can give to his children, how he will help his parents, how he will cope with his own illness. In such a situation, having money helps to achieve peace of mind and gain confidence in the future. At the same time, there is a feeling of not only basic security, but also the ability to control the situation. If you have money, problems that arise are much easier to solve.
2. Achievement of freedom and independence. When a person dreams of big money, he often thinks about freedom and independence. Wherein important to distinguish the opportunities that can be obtained from the desire to throw off the burden of responsibility. Often, the dream of money hides fear and a desire to run away from problems.
3. Confirmation of self-worth. Having money makes you feel important. Some people think that those who earn a lot are better than those who do not succeed. In an effort to earn as much as possible, they try to give themselves importance in their own eyes. But almost always there is someone who has even more money. As a result, in constant torment and attempts to earn even more people remain unhappy. Read about how to make money quickly and a lot in a special publication.
4. Desire to achieve recognition and respect. It is not uncommon for people to spend huge amounts of money on gifts and charity, as well as entertaining other people. While forgetting about their needs, they want to demonstrate how good they are. Others need money as a way to perpetuate their name in history. Some want to make a scientific discovery, others want to publish a book — all this requires an investment.
5. Striving for power. Big money can be a sign of omnipotence. If they are available, it becomes possible to manage everything. Some people are sure that they can exchange time for money, and then vice versa. They spend all their time at work at first, trying to get the maximum income in the hope that when they have enough money, they can have a good rest. In fact, in most cases, such a desire is not justified. Either it is impossible to earn the necessary amount, or when it is there, all desire to spend it disappears. Anyone should learn to enjoy life here and now.

Read also our article «Where to get money urgently».

Question 3. How and where is money printed in Russia, who does it?

The production of special paper for money is carried out at 2-s factories that are branches «Gosznak»… They are located in St. Petersburg и Krasnokamsk… The reform of the Federal State Unitary Enterprise was recently carried out. Despite this, it continues to be completely under the control of the state.

In the process of printing banknotes, special technologies are used to protect them from copying. Manufacturing involves a number of complex processes that involve a large number of enterprises.

The basis is created at the Krasnokamsk and St. Petersburg factories, it includes:

1. reagents;
2. fabric fibers;
3. water marks;
4. polymer threads.

This material is resistant to moisture and UV rays. In addition, it is carefully protected against counterfeiting.

A special solution is also added to the material. When viewed with the naked eye, the paper has purple tint… However, under ultraviolet light are visible red и green shades in the threads.

Rolls of the finished base are sent to production plants «Gosznak»… Banknotes are printed on a special integrated machine.

In this case, several types of printing are used:

• offset — for covering banknotes with a film, which protects them from moisture;
• high — intended for embossed drawing of series and numbers;
• Orlovskaya represents a spill of the coloring matter into forms with further slow coloring of the base, as a result of which smooth transitions of shades appear;
• metallographic necessary for drawing an accurate pattern.

In Russia banknotes are printed on 3-s main factories. One is in Perm and two in Moscow… They are branches of the Federal State Unitary Enterprise «Gosznak», which is located in Moscow. Before the factories start printing bills, a large number of employees are working on the design:

• photographers;
• painters;
• designers;
• engravers;
• etchers;
• stampers.

The developed project version is approved by the commission. Only after that the sample of the banknote is transferred to mass printing.

Earlier in the article, it was mentioned that in There is a printing factory in Perm, which is one of the enterprises where banknotes are printed. The traditions of this manufacturing facility are held in high esteem by even the most valuable specialists in the industry.

The factory employs real professionals who are engaged in the production of various products with a high degree of protection. It produces not only banknotes, but also civil passports, savings books and other documents with protective signs.

Perm and Moscow are two cities where Russian banknotes are printed. In this case, materials are used that are manufactured in St. Petersburg and Krasnokamsk.

The locations of the factories are as follows:

1. Moscow, Danilovsky Val, 1g;
2. Perm, Cosmonauts highway, 115Mr.

Highly qualified specialists work at these factories. Thanks to their work, the banknotes are of high quality.

To increase the ↑ level of protection against counterfeiting, a number of procedures are used:

• applying watermarks and security threads to the material;
• the use of various methods in printing banknotes;
• all banknotes are numbered;
• with the help of a laser, special holes are burned out in the form of denomination of banknotes.

However, in our country there is also metal money… They are minted at specialized mints located in Moscow и St. Petersburg… One of the oldest coin production facilities is located in the city on the Neva.

Manufacturing enterprises operate with a capacity that allows for the turnover of the required number of banknotes. This takes into account the various reasons for the retirement of banknotes from circulation (write-off of worn-out banknotes, losses). Every year produced 5 billion coins, 7 billion banknotes и 11 thousands of tons of materials for their printing.

Than above ↑ denomination of banknotes, the more ↑ complex degree of protection used in its production.

However, when printing banknotes, it is imperative to consider financial balance… Despite the fact that production can work around the clock, the decision on the amount of required banknotes is carried out Central Bank of Russia… First, finance specialists carry out complex calculations, analyze the economic situation and monitor compliance with the laws of the country.

If there is a need for cash, the application is sent to Perm for the production of banknotes and to St. Petersburg for minting coins. If you do not take into account the economic calculations, an excessive amount of money will inevitably lead to an increase in the inflation rate ↑.

Too much cash in circulation entails a depreciation of money. In other words, their real value becomes much less ↓ nominal. This situation in the economy is quite dangerous and can provoke a crisis. Therefore, specialists are constantly developing effective procedures that will help maintain the stability of the financial situation.

The Moscow factory, which prints banknotes, is a secure enterprise and a strategically important object of state property. The General Director of «Gosznak» today is Arkady Trachuk.

Question 4. What theories of money exist?

Historically 8 main theories of money… These are discussed below.

1) Metallic theory of money (from the XNUMXth to the XNUMXth centuries)

This theory states: purchasing power is determined by the composition of the coin, in other words, the precious metal used in its manufacture. For this reason, this theory does not recognize banknotes.

The most valuable are coins made of precious metals. They have the maximum value due to natural properties that do not depend on the development of exchange relations.

2) Nominalistic (from the XNUMXth to the XNUMXth century)

The first representatives of the theory under consideration were the British J. Berkeley и J. Start… Proponents of the theory are sure: purchasing power depends solely on the face value of the money. It represents the amount that is indicated on the banknote.

(I.e. In other words, monetary funds are only conventional, that is, nominal signs. Their value is not determined by the material content.

The theory was based on statements:

1. money is produced by the state;
2. the cost corresponds to the face value.

The most important mistake in this case is the statement: the value of the currency is determined by the state. Such confidence denies the commodity nature of money, as well as the theory of labor value.

Subsequent development fell on the period from the end XIX before the beginning XX century. The most famous representative of the theory of this period is G. Knapp… He believed that money has purchasing power… This property is given by the state.

The evolution of the theory at this time is as follows: Knapp invested in its basis not full-fledged coins, but paper money. But when analyzing the money supply, he took into account only the state treasury notes and bargaining chips. Knapp completely excluded credit money from his theory. Ultimately, as this form of money evolved, the concept became insolvent.

Nominalism was of great importance for the economic policy of Germany. Emissions were widely used here, primarily for the purposes of the First World War. Eventually hyperinflation in this country, which manifested itself in 1920-s, led to the end of the reign of nominalism.

Economics scholars today disagree with Knapp’s basic theoretical statements. Continuing to deny labor value, they began to search for ways to calculate the value of money not in state laws, but in the field of market relations.

3) Quantitative (late XNUMXth — early XNUMXth centuries)

This theory states that purchasing power as well as price levels are determined by how much money is in circulation… Gradually, this theory changed, laying the foundation for monetarism in modern economics.

4) Monetarism

According to this theory, the money supply in circulation is of fundamental importance for maintaining stability, as well as the evolution of a market economy.

The founder of the theory was M. Friedmanwho created it in 50years XX century. The peak of the development of monetarism was the theoretical concept of achieving stability in the American economy, known as Reaganomics… It helped to reduce ↓ the inflation rate in America and also to strengthen the dollar.

5) Keynesianism

Keynesianism examines the essence of money from the perspective of their impact on production. Founder of the theory Keynes — English economist. It started at the end 1920-x — beginning 1930-s. The velocity of circulation is analyzed as a variable that changes in accordance with various parameters of the economy.

6) Functional

Functional theory analyzes the purchasing power as a result of the functioning of money, that is, their circulation. This theory helps to substantiate the fact that the metallic content of money is insignificant in connection with the performance by them of the function of a medium of exchange.

7) State

This theory is based on the statement that the state is engaged not only in creating money, but also in giving it payment power. The theory considers exclusively the legal nature of funds, denying any significance for the solvency of the metal content.

Proponents of the theory are sure that paper money is no worse than metal money. In this case, the most important from the point of view of the theory under consideration is the function of money as a means of payment. Functions as a measure of value, accumulation, and world money are not taken into account.

 Informational

Here money is presented as a type of information about the value associated with certain types of media, which are paper, as well as electronic means.

In accordance with this theory, the most important bearers of money were:

• in the agrarian period of the development of society — precious metals;
• into industrial — thermal paper;
• in the modern information period — electronic media.

At the same time, economic activity is perceived as informational.

Question 5. What is Bitcoin virtual money?

Bitcoin became historically the first cryptocurrency. This kind of money was created in 2009 году Satoshi Nakamoto… No one knows who this is — an individual programmer or even a group of them. It was Satoshi Nakamoto who came up with not only the name Bitcoin, but also the entire algorithm for the operation of this cryptocurrency. We have already talked about what a cryptocurrency is in simple words in one of our articles.

We also advise you to watch the video — «What is Bitcoin and what is it for»:

 

In reality, people are forced to use some kind of currency in their lives. They cannot do without it. In contrast to this approach, no one forced anyone to pay with bitcoins. Cryptocurrencies have become the free choice of free people.

All network members have the right to carry out instant transactions. In this case, there is no need to seek help from intermediaries. In other words, the transfer of funds between the counterparties of the transaction is carried out directly.

Money in the Bitcoin system is a specially formed cryptographic codes… Moreover, absolutely all of them are unique. The bitcoin network algorithm is based on blockchain technology.

Like any other currency, Bitcoin has course… You can find out its actual value on blockchain.com.

New Bitcoins are being created in the process of mining, which is also called cryptocurrency mining. The essence of this process is to solve a complex crypto problem using a brute-force method.

An ordinary computer is not suitable for mining. For this purpose, servers or other equipment with superpowers are used. Due to the fact that the Bitcoin network is expanding at a tremendous pace, mining has become a complex process, which is almost impossible for individuals today.

However, there are other ways to get Bitcoins for use:

• in payment for goods sold and services provided;
• purchase of cryptocurrency on the exchange;
• exchange between individuals.

The main disadvantage (-) Bitcoin is called a strong influence on its course of various news. Most of the major increases and decreases in the value of the cryptocurrency have occurred under the influence of statements by the governments of different states.

High ↑ level of volatility can be extremely unpleasant in the short term. Within just one month, the currency can fall ↓ more than 10%. But there is also a possibility and growth ↑ by the same amount.

But, if the volatility level of Bitcoin is less than ↓, it will become much less attractive to investors.

Although Bitcoin is already about 10 years, many still do not understand where to use it. It can be used to generate anonymous payment for goods and services online… Also, without any problems with a minimum commission, you can make international payments, since there is no link to any state for cryptocurrency.

There are several ways to store Bitcoin:

1. In an offline wallet, which is a special program installed on a computer. To avoid unauthorized access to money stored in such a wallet, it is encrypted. But this option has serious shortcomings — if the owner of the wallet forgets the password for it or the hard drive on the computer is lost, access to Bitcoins will be permanently lost.
2. Online cryptocurrency wallet. This option has a number benefits before the offline option. In this case, access to money can be obtained from any device with Internet access. But there is also flaw — storage of all information is carried out on the server. If attackers manage to crack it, they will gain access to all data.

9. Conclusion + related video 🎥

To the table of contents ↑

Without studying the theory about money, it is impossible to begin to improve the level of financial literacy. It is important to thoroughly understand the basics in order to further confidently gain knowledge.

We recommend watching a video on where to get money:

And also how to save and save them correctly:

The team of the site «RichPro.ru» wishes all readers of constant self-improvement! This will help you achieve success and financial independence.

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?
• When Was Money Invented?
• History of Bartering
• First Metal Money — Coins
• First Paper Money
• The Introduction of Banks
• The Gold Standard
• Modern Day Money
• How Can I Manage My Money?

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.

Early Coins

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.

Currency Wars

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.

Online Payments

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.

Digital Currency

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.

The Impact of Money throughout History

Money is one of the most important parts of human history, leading to some of the biggest and most vital moments for many nations. The invention of currency allowed people to trade goods and services without having to barter to find an appropriate price. Paper currency allowed for international trade thanks to its light weight and relatively small size. Digital currency allows individuals to invest in potentially growing currencies and spend money in a way that’s more convenient.

Since money was first invented, it’s had an immense impact on how trade is done throughout the world and how we live today. Not only have wars been fought over money, but some of the most important advancements we’ve made in human history wouldn’t be possible without it.

How Can I Manage My Money?

Knowing about the history of money and how money impacts your life is important, but understanding how to manage your money is even more crucial. Throughout the history of money, finding ways to save, invest, and spend smartly has been a key to financial success.

If you want to manage your money better, focus on getting out of debt and staying out of debt in the future. You can use apps to track your spending and make a plan to pay off debt, and you can invest in crypto or other digital currencies for a slight boost in income. If you need help managing your money and making smarter decisions, the Mint app makes it easy to track your spending and oversee your finances in one simple place.

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banknotes, coins,
assets, “broad money”, commodity money, a medium of
exchange, a store of value, a unit of account, barter economy

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History of the word “money”

Money
plays a key role in today’s economies. It is certainly no
exaggeration to say that “money makes the world go round” and
that modern economies could not function without money. The English
word “money” is of Roman origin. In ancient Rome, however, the
word “Monetor“ or “Moneta” meant advisor, i.e. a person who
warns or who makes people remember. According to some historians, the
meaning of the word goes back to a key event in Roman history. A
flock of geese in a sanctuary of the Goddess Juno on Capitoline Hill
squawked an alarm to alert the Roman defenders during an invasion of
the Gauls in 390 B. C. and thus saved them from defeat. In return,
the Romans built a shrine to Moneta, the goddess who warns or who
gives advice. In 289 B. C. the first Roman mint was built in or near
this temple, initially producing bronze and later silver coins. Many
of these coins were cast with the head of Juno Moneta on their face.
Hence the words “money” and “mint” are derived from her name.

Functions of money

What
is money? If we have to define money today, we first think of
banknotes and coins. These assets are regarded as money since they
are liquid. This means that they are accepted and are available to be
used for payment purposes at any time. While it is uncontested that
banknotes and coins fulfill this purpose, nowadays a number of other
forms of assets exist which are very liquid and can be easily
converted into cash or used to make a payment at very low cost. This
applies, for instance, to overnight deposits and some other forms of
deposits held with banks. Consequently, these instruments are
included in those definitions of money often referred to as “broad
money”.

The
various forms of money have changed substantially over time. Paper
money and bank deposits did not always exist. It would therefore be
useful to define money in more general terms. Money can be thought of
as a very special good that fulfills some basic functions. In
particular, it should serve as a medium of exchange, a store of value
and a unit of account. Therefore, it is often stated that money is
what money does.

In
order to better illustrate these functions, consider how people had
to conduct their transactions before the existence of money. Without
money, people were forced to exchange goods or services directly for
other goods or services through bartering. Although such a “barter
economy” allows for some division of labour, there are practical
limitations and any exchange of goods implies substantial so-called
“transaction costs”. The most apparent problem with a barter
economy is that people have to find a counterpart who wants exactly
the same good or service that they are offering and who is offering
what they want in return. In other words: a successful barter
transaction requires a mutual coincidence of wants to exist. A baker
who, for instance, wanted a haircut in exchange for some loaves of
bread would have to find a hairdresser willing to accept those loaves
of bread in exchange for a haircut. However, if the hairdresser
needed a pair of shoes instead, he would have to wait until a
shoe-shop owner wanted to get a haircut in exchange. Such a barter
economy would therefore imply substantial costs related to searching
for the appropriate counterpart and waiting and stockpiling.

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Money. People worry about it, think of ways to get more of it, and dream about how to spend it. But how much do we really know about money? Keep reading for a short history of currency.

• Cowrie shells and other items from nature

  Some of the earliest currencies were objects from nature. A notable example is cowrie shells, first used as money about 1200 BCE. Although they may seem a pretty random choice, the shells had a number of advantages: they were similar in size, small, and durable. While the mollusks that produce the shells are found in the coastal waters of the Indian and Pacific oceans, the expansion of trade meant that even some European countries accepted cowrie shells as currency. Shells in the form of wampum (tubular shell beads) were used as money by Native Americans. Another currency from nature was whale teeth, which were used by Fijians. And the people of Yap Island (now part of Micronesia) carved huge disks of limestone that eventually became currency and remain part of the island’s culture.

• Counterfeiting

  Counterfeiting dates to the invention of money. Even wampum was the target of counterfeiters. Forgery proved such a huge problem around the world that harsh penalties were enacted. Chinese currency from about the 14th century carried the warning that counterfeiters would be decapitated, and England was known for punishing perpetrators by burning them at the stake. In the American colonies too, death greeted early counterfeiters. Numerous measures were taken to prevent forgeries. Ben Franklin, who owned a firm that printed money for several colonies, notably misspelled Pennsylvania, believing that counterfeiters would correct the error in their forgeries. Today anti-counterfeiting measures are much more elaborate. For example, the $20 bill—the most counterfeited note in the United States—has raised printing and a watermark and security thread that are visible when the note is held to the light. However, penalties for counterfeiting have relaxed. In the United States, the maximum prison sentence is 20 years.

• Coins

  While the use of metal for money can be traced back to Babylon before 2000 BCE, standardized and certified coinage may not have existed until the 7th century BCE. According to many historians, it was during this time that the kingdom of Lydia (in present-day Turkey) issued the first regulated coins. They appeared during the reign (c. 610–c. 560 BCE) of King Alyattes and were made of electrum, a natural mixture of gold and silver. Crudely shaped like beans, these coins featured the royal symbol, a lion. Alyattes’ son, Croesus (reigned c. 560–546), reformed the kingdom’s currency, introducing silver coins and gold coins. Soon such currency began appearing elsewhere.

• Leather money

  About the 6th century BCE leather and animal hide began to be fashioned into currency. Early ancient Rome reportedly used this type of money. It was also found in such areas as Carthage and what is now France, and Russia is believed to have used leather money into Peter the Great’s reign (1682–1725 CE). The Chinese emperor Wudi (reigned 141–87 BCE) created currency out of skins from his personal collection of white stags. It was fringed and decorated with elaborate designs. Although no longer used, leather money may have left a lasting legacy: some believe it gave rise to the use of buck as slang for dollar.

• Paper money

  Given that paper is widely believed to have originated in China, it is fitting that that country introduced paper currency. This innovation is widely thought to have occurred during the reign (997–1022 CE) of Emperor Zhenzong. It was made from the bark of mulberry trees (so, in a sense, money really did grow on trees). By the late 18th and early 19th centuries, paper money had spread to other parts of the world. The bulk of this currency, however, was not money in the traditional sense. Instead, it served as promissory notes—promises to pay specified amounts of gold or silver—which were key in the development of banks.

• Gold standard

  Unsurprisingly, currency comes with a number of problems, one of which concerns fiat money. This is currency that is issued on the “fiat” (decree) of a sovereign government and, unlike gold and silver coins, has no intrinsic value. Countries can thus issue such money at will, and some did (and do), potentially making the currency worthless. This became such a problem that in 1821 the United Kingdom—then the leader in international finance—introduced the gold standard. In this monetary system, the standard unit of currency is typically kept at the value of a fixed quantity of gold, which increases confidence in international trade by preventing governments from excessively issuing currency. Eventually, other countries, including Germany, France, and the United States, adopted the gold standard. However, the system had its drawbacks. Notably, it limited a country’s ability to isolate its economy from depression or inflation in the rest of the world. After the Great Depression (1929–c. 1939), countries began to rethink the gold standard, and by the 1970s gold was no longer being tied to currency. Since then there have been a number of extreme cases of hyperinflation. A notable case is Zimbabwe in the early 2000s, when the country issued currency in denominations as high as $100 trillion—which was worth about a loaf of bread.

• Credit cards

  While credit has existed for ages, the first universal credit card was not introduced until 1950. That year Americans Ralph Schneider and Frank McNamara founded the Diners Club. Other cards were soon created, and in 1959 American Express debuted a plastic card. We have IBM to thank for the magnetic stripe on credit cards, which was introduced in the 1960s to contain account information. Because of the stripe, merchants no longer needed to make phone calls to obtain authorization from credit companies. In the 1990s, cards began to have chips embedded in them to encrypt their information, providing even greater security. Other changes involved account balances. In the beginning, credit card users were required to pay the full balance at the end of the month. Eventually, American Express allowed consumers to carry balances—though interest was applied—and other credit companies quickly followed. Customers took advantage of this development—maybe a little too much. In 2017 American consumers were carrying $1 trillion in credit card debt.

• Bitcoins

  Bitcoin is a digital currency system created in 2009 by an anonymous computer programmer or group of programmers known as Satoshi Nakamoto. The currency is not issued by a central bank and is not regulated, though a decentralized network of computers keeps track of transactions. Users of Bitcoins are anonymous, known only by their digital wallet ID. The value of Bitcoins is determined by bidding, similar to the way stocks are valued. How are Bitcoins created? In a process called mining. This involves a race between computers to solve complex math problems and thus verify blocks of transactions. While that may sound easy, it isn’t. It’s estimated that nearly seven trillion attempts may have to be made before a solution is discovered. In the end, the owner of the winning computer gets newly created Bitcoins, and the system is made more secure. The cap for the number of Bitcoins that can be created is 21 million, and more than 17 million have been created so far.