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The history of money concerns the development of social and economic
systems that provide at least one of the functions of money. Such systems can
be understood as means of trading wealth indirectly; not directly as with
barter. 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).
The invention of money took place before the beginning of written history.
Consequently, any story of how money first developed is mostly based on
conjecture and logical inference. The significant evidence establishes many
things were bartered 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 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.
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
and the transition from "barter systems" to the "monetary
systems". Further, evidence in the histories 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. 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, 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.
Regarding money of exchange, the use of representative money historically
pre-dates the invention of coinage as well. In the ancient empires of Egypt,
Babylon, India and China, the temples and palaces often had commodity
warehouses which made use of clay tokens and other materials which served as
evidence of a claim upon a portion of the goods stored in the warehouses.
Because these tokens could be redeemed at the warehouse for the commodity they
represented, they were able to be traded in the markets as if they were the
commodity or given to workers as payment. 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 clearist 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. 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. Vienna made this change in 1328. 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.
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. 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.
Theories of money:
Main article: Monetary economics:
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. Especially, the Austrian
economist attempted to develop a catalatic theory of money out of Claim Theory.
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.
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. 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. Overall, the different theories of money developed by
economists largely focus on functions, use, and management of money. 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. 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.
Money supply:
Main article: Money supply:
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.
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.
M1: Bank reserves are not included in M1.
M2: Represents M1 and "close substitutes" for M1. M2 is a broader
classification of money than M1. M2 is a key economic indicator used to
forecast inflation.
M3: M2 plus large and long-term deposits. Since 2006, M3 is no longer published
by the U.S. central bank. 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.
Technologies:
Assaying:
Assaying is analysis of the chemical composition of metals. The discovery of
the touchstone [when?] for assaying helped the popularization of metal-based
commodity money and coinage. 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. 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.]
Prehistory::
predecessors of money and its emergence
Non-monetary exchange
Gifting and debt:
There is no evidence, historical or contemporary, of a society in which barter
is the main mode of exchange; instead, non-monetary societies operated largely
along the principles of gift economy and debt. When barter did in fact occur,
it was usually between either complete strangers or potential enemies.
Barter:
Main article: Barter:
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:
In Politics Book 1:9 (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.
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.
Finding people to barter with is a time-consuming process; Austrian economist
Carl Menger hypothesized 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.
In his book Debt: The First 5,000 Years, anthropologist David Graeber argues
against the suggestion that money was invented to replace barter. 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. 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".
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".
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. 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.
(It is that and also an example of Selgin's and Menger's use of deductive
reasoning and Graeber's use of inductive reasoning).
Gift economy:
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). 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. Another interpretation is that implicit "I owe you" debt
and social status are awarded in return for the "gifts". 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:
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.
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. 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. 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.
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. 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.
Bronze Age: commodity money, credit and debt:
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.
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, which
was nominally equivalent to a specific weight of barley that was the
preexisting and parallel form of currency. 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, legal contracts and law codes
relating to business practices and private property. Money emerged when the
increasing complexity of transactions made it useful.
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). 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.
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, as
had been done earlier in Mesopotamia with silver bars. Spade money from the
Zhou Dynasty, c. 650–400 BC The first mention in the Bible of the use of
money is in the Book of Genesis in reference to criteria for the circumcision
of a bought slave. Later, the Cave of Machpelah is purchased (with silver by
Abraham, some time after 1985 BC, although scholars believe the book was edited
in the 6th or 5th centuries BC 1000 BC – 400 AD
First coins:
(examples illustrated)
The oldest turtle coin from 7th century BC; this coin: after 404 BC - A 7th
century one-third stater coin from Lydia, shown larger
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. 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. Maybe the first ruler in the
Mediterranean known to have officially set standards of weight and money was
Pheidon. 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. 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 of a turtle coin, coined at Aegina
island. This coin dates to about 7th century BC.
Herodotus dated the introduction of coins to Italy to the Etruscans of
Populonia in about 550 BC. 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). 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 temple).; a temple consecrated to the same goddess was built in the
earlier part of the 4th century (perhaps the same temple). For four centuries
the temple contained the mint of Rome. 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:
[icon] 400–1450
Medieval coins and moneys of account:
See also:
Coin :
Middle_Ages:
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".
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".
First paper money:
Main article: Banknote:
Earliest banknote from China during the Song Dynasty which is known as
"Jiaozi". Paper money was introduced in Song dynasty China during the
11th century. 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. 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.
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. The taka was
widely used across South Asia during the sultanate period Silver coin of the
Maurya Empire, known as rupyarupa, with symbols of wheel and elephant. 3rd
century BC.
The French East India Company issued rupees in the name of Muhammad Shah
(1719–1748) for Northern India trade. This was cast in Pondicherry. 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. 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, along
with the Lydian staters, several other Middle Eastern coinages and the Chinese
wen. The term is from rupya, a Sanskrit term for silver coin, from Sanskrit
rupa, beautiful form. 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. Both the
Kabuli rupee and the Kandahari rupee were used as currency in Afghanistan prior
to 1891, when they were standardized as the Afghan rupee. The Afghan rupee,
which was subdivided into 60 paisas, was replaced by the Afghan afghani in
1925.
Until the middle of the 20th century, Tibet's official currency was also known
as the Tibetan rupee. In the 13th century, paper money became known in Europe
through the accounts of travelers, such as Marco Polo and William of Rubruck.
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." 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 whomever had it in their possession. These notes can be seen as a
predecessor to regular banknotes.
Trade bills of exchange:
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.
Islamic Golden Age:
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, cheques, promissory notes, savings accounts,
transactional accounts, loaning, trusts, exchange rates, the transfer of credit
and debt, and banking institutions for loans and deposits. Indian subcontinent
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 rulers.
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, along with
the Lydian staters, several other Middle Eastern coinages and the Chinese wen.
The term is from rupya, a Sanskrit term for silver coin, from Sanskrit rupa,
beautiful form. 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.
Tallies:
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. 1450–1971
Goldsmith bankers:
Main article: Goldsmith banker:
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. 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, 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. 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. 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.
Demand deposits:
Demand deposits are funds that are deposited in bank accounts and are available
for withdrawal at the discretion of the depositor. The withdrawal of funds from
the account does not require contacting or making any type of prior
arrangements with the bank or credit union. As long as the account balance is
sufficient to cover the amount of the withdrawal, and the withdrawal takes
place in accordance with procedures set in place by the financial institution,
the funds may be withdrawn on demand.
First European banknotes:
The first European banknotes were issued by Stockholms Banco, a predecessor of
Sweden's central bank Sveriges Riksbank, in 1661. These replaced the
copper-plates being used instead as a means of payment, 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). 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:
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 component, 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.
Payment cards:
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. Since 1980,
Credit Card companies are exempt from state usury laws, and so can charge any
interest rate they see fit.
Outside America, other payment cards became more popular that credit cards,
such as France's Carte Bleue.
Digital currency:
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. In 2012, by number of transaction, 20 to 58 percent of
transactions were electronic (dependent on country). The benefit of digital
currency is that it allows for easier, faster, and more flexible payments.
Cryptocurrencies Main article: Cryptocurrency 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, fungible and tamper resistant distributed ledger called a
blockchain. It became the first widely used decentralized, peer-to-peer,
cryptocurrency. Other comparable systems had been proposed since the 1980s. 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.
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