Money is such a curious concept. We all have these paper notes and plastic cards in our wallets that ultimately define how comfortable we are in everyday life. Bank accounts are even stranger. A simple number determines what and how much you can buy, even though you can't see or touch the cash. Money has been around almost as long as thousands of years. It has evolved from a simple system of exchange to a sophisticated element of power. Totaling the many uses and forms of money, the entire global wealth count was estimated to be $463.6 trillion by the end of 2022.
There are five stages of money history -
Barter system - Ancient civilizations and tribes used bartering system which involved swapping of goods and services. Both parties had to bargain until they were happy with the deal. For example, a person would trade a few bags of grains for a goat or a cow. This system was not feasible because there wasn't any uniform method to define how many bags of rice worth a cow would be.
Commodity money - The barter system evolved into commodity money as people saw most value in salt, coffee, tea, tobacco, cattle and used them as key trading elements. This too couldn't be sustained as it created logistical issues. Carrying around huge bags of salt or cattle to buy groceries was not convenient.
Metal money - The drawbacks of the commodity money lead to the invention of metal coins. First metal coins were minted in Lydia (western Turkey) in 600 BC. Lydians made coins using electrum, a naturally occurring alloy of gold and silver. The coins were stamped with different symbols and signs, which showed the value of each coin. Precious metals were used as money not because they were valuable, but because they were scarce. For a thing to serve as money, scarcity is more important than value. Hence metal coins were the main form of money throughout the major portion of recorded history. It caught on quickly in other parts of the world due to its convenient nature. It is known that China also minted metal coins around the same period.
Paper money - while metal coins were gaining prominence in international trades, China stumbled upon the concept of paper money. When trade between Europe and China was flourishing, the Chinese started running out of copper to mint coins and stared using paper instead. What started out as a short term plan by the then king turned into a full fledged practice, once they realized its convenience.
In the beginning paper notes were simple claims to and substitutes for metallic money. With passage of time paper notes took the form of bank notes which were issued by all commercial banks. later when paper money become inconvertible into metallic money, issuing of bank notes became the monopoly of the Central Bank of a country. when notes were introduced, they were backed by an exactly equal amount of gold by the central banks. This was known as "Full reserve system." Over the years it was seen that people found notes very convenient & seldom thought of presenting them to the issuing authority. Therefore full backing of gold was not required. The currency notes issued today are "Fiat paper money" This means that they are issued by the fiat, "order of the government." As they are legal tender, they are acceptable in exchange for goods and services.
Digital money - With the evolution of technology and the changing requirements of economies, money and finance systems have change hugely. Credit and debit cards were introduced as forms of electronic money. Anybody could store the money in these cards, make payments and transfer money online. new advancements in the payment system such as electronic transfers (EFTS, NEFT etc), mobile banking apps have made transfers possible within seconds.
The topic of money is incomplete without discussing about cryptocurrency. Cryptocurrencies were introduced over a decade ago to bridge the gap in the existing financial system. Unlike traditional currencies, cryptos are not issued by the government and are intangible, virtual money and works on blockchain technology which is robust and secure. These are decentralized, digital tokens that allow people to make payments, transfers, save, trade and invest for future. Cryptocurrency is still in its nascent stage and has a long way to go, till it finds its acceptance in the financial world.
