Money has come a long way. From the interchange of goods for goods without proper evaluation, to commodity money, our understanding of money has evolved with time.
Trade by barter began as the fundamental of currency exchange when people began to exchange their excesses for other necessities. The items that were traded were typically in their elemental form and catered to the basic necessities of the individuals involved in the trade. As such, there was no value assessment of the items exchanged. This posed a problem and subsequently led to the invention of commodity money.
Certain items became more in demand than others. In time, they became a form of currency. This is what is described as commodity money. Some examples of commodity money used in many parts of Africa and in South America are salt, cloth, cattle, and cowries. However, commodity money soon grew impractical as a result of alteration in the economic value of these items. Humans soon evolved to using metal money.
Metal was originally used in its elemental form, but in time, they were first moulded into slabs and then, coins. They were also made into trinkets and accessories, which were also valuable. Metal also replaced stone and wood as the materials used for weapons and utensils.
As the use of metal began to evolve, weight measurement became the means of assessing its value. However, in order to make trading faster and more convenient, the value of the slab of metal was inscribed into them.
The coins that resemble what we have now were first introduced around the 7th century B.C. Over the centuries, metal money was made from different metal and metalloid materials. Some of the more prominent and most valuable ones include gold, silver, and bronze.
However, currency evolved to become more about the inscriptions of them than about the value of the metal itself, in order to regulate and control the circulation of money. Since the value of the metal became meaningless, humans realized we didn’t have to use metal at all.
The first banknotes were issued by the Bank of Brazil in 1810. The value of the note was written by hand just like we do with cheques. Soon, the technique was replicated in print across the world. Paper money has evolved in the quality and durability of the paper used over the years. Currently, both paper money and coins are the two most used forms of money.
Both paper and metal were used as representative money before we evolved our current system. Representative money, as briefly mentioned above, worked just like cheques. They were used as receipts for precious material. They were mostly made with inexpensive materials like paper or copper and represented a fixed value for precious metals, like gold or silver. They were issued by a bank or by the government and could be exchanged for goods or services.
Money has taken several shapes over the centuries. However, monetary systems have also varied distinctively. There are three common types of monetary systems – commodity money, representative money, and fiat money. Currently, most of the world runs on a fiat monetary system. This system is regulated by congruent legislative laws. Fiat money uses similar material as representative money. But instead of storing gold or silver in the bank, fiat money represent value in themselves.
This method was developed when banks realised that many people were not coming back to collect their gold or silver deposits and instead, did most of their transactions with the representative receipts.
While fiat currency has no intrinsic value in itself, the value is in the scarcity of it, regulated by the Government.
The Advent of Digital Currency
The pattern of money evolution shows that currency evolves due to factors that reflect human need for convenience. When the invention of new material and better understanding of trade, currency has changed form over the years. Money was not just invented by a stroke of genius, it evolved from necessity, and the evolution of it shows us that humans will always find ways to merge currency with the realities of its socio-economic systems. We live in the digital age, and most of our basic necessities have been digitalized. So the question is, why not money?