The History of Money: Bartering to Banknotes to Bitcoin (2024)

The terms money and currency are often used interchangeably. But several theories suggest they are not identical. According to some theories, money is inherently an intangible concept. Currency, on the other hand, is the physical or tangible manifestation of the intangible concept of money.

According to this theory, money cannot be touched or smelled. Currency is the coin, note, object, or physical representation that is presented in the form of money. The basic form of money is numbers while the basic form of currency is paper banknotes, coins, or plastic cards like credit or debit cards. Though this distinction between money and currency is important in some contexts, for the purposes of this article, the terms are used interchangeably.

Key Takeaways

Money is a medium of exchange with a recognized value that was adopted to make it easier for people to trade products and services with each other.
The history of money crisscrosses the world as various cultures recognized the need to simplify trade by introducing a single, portable token of value into the process.
People bartered before the world began using money.
The world’s oldest known coin minting site was locatedin China, which began striking spade coins sometime around 640 BCE.
Since then, the world adopted banknotes and moved into digital forms of payment, including virtual currencies.

What Is Money?

Money doesn't always have value whether it's represented by a seashell, a metal coin, a piece of paper, or a string of code mined electronically by a computer. With global wealth estimated to be about $454.4 trillion at the end of 2022, the value of money depends on the importance that people place on it as a medium of exchange, a unit of measurement, and a storehouse for wealth.

Money allows people to trade goods and services indirectly. It helps communicate the price of goods and provides individuals with a way to store their wealth. It is valuable as a unit of account—a socially accepted standard by which things are priced and with which payment is accepted. However, both the usage and form of money have evolved throughout history.

The History of Money: Bartering to Banknotes to Bitcoin (1)

From Bartering to Currency

Money has been part of human history for at least the past 5,000 years in some form or another. Before that time, historians generally agree that a system of bartering was likely used. Bartering is a direct trade of goods and services.

For example, a farmer may exchange a bushel of wheat for a pair of shoes from a shoemaker. However, these arrangements take time. If you exchange an axe as part of an agreement in which the other party is supposed to kill a woolly mammoth, you have to find someone who thinks the tool is a fair trade for having to face down the 12-foot tusks of a mammoth. If this doesn't work, you would have to alter the deal until someone agreed to the terms.

A type of currency slowly developed over the centuries that involved easily traded items like animal skins, salt, and weapons. These traded goods served as the medium of exchange even though the value of each of these items was still negotiable in many cases. This system of trading spread across the world and still survives today in some parts of the globe.

One of the greatest achievements of the introduction of money was the increased speed at which business, whether it involved mammoth slaying or monument-building, could be done.

In early August 2021, Chinese archaeologists with theState University of Zhengzhou announced the discovery of the world’s oldest known, securely dated coin minting site inGuanzhuang in Henan Province, China. A mint is a facility where currency is created. Sometime around 640 BCE, this facility began striking spade coins, one of the first standardized forms of metal coinage.

First Official Currency Is Minted

Meanwhile, further west during this era, in 600 BCE, the invention of metal coinage occurred when Lydia's King Alyattes minted what is believed to be the first official currency, the Lydian stater.

The coins were made from electrum, a mixture of silver and gold that occurs naturally, and the coins were stamped with pictures that acted as denominations.

Lydia's currency helped the country increase both its internal and external trading systems, making it one of the richest empires in Asia Minor. Today, when someone says, "as rich as Croesus", they are referring to the last Lydian king who minted the first gold coin.

The History of Money: Bartering to Banknotes to Bitcoin (2)

Transition to Paper Currency

During 1260 CE, the Yuan dynasty of China moved from coins to paper money. By the time Marco Polo, a Venetian merchant, explorer, and writer who traveled through Asia along the Silk Road, visited China in approximately 1271 CE, the emperor of China had a good handle on both the money supply and its various denominations. In fact, in the place where modern American bills say, "In God We Trust," the Chinese inscription at that time warned: "Those who are counterfeiting will be beheaded."

Parts of Europe still used metal coins as their sole form of currency until the 16th century. Colonial acquisitions of new territories via European conquest provided new sources of precious metals and enabled European nations to keep minting a greater quantity of coins.

But banks eventually started using paper banknotes for depositors and borrowers to carry around in place of metal coins. These notes could be taken to the bank at any time and exchanged for their face value in metal, usually silver or gold, coins. This paper money could be used to buy goods and services. In this way, it operated much like currency does today in the modern world. But it was issued by banks and private institutions rather than the government, which is now responsible for issuing currency in most countries.

The first paper currency issued by European governments was actually issued by their colonial governments in North America. Because shipments between Europe and the North American colonies took a long time, colonies often ran out of cash. Instead of going back to a barter system, the colonial governments issued IOUs that traded as currency. The first instance was in Canada (then a French colony) in 1685 when soldiers were issued playing cards denominated and signed by the governor to use as cash instead of coins from France.

The gold standard was established in the 1870s. Under this rule, currency printing was permitted based on the amount of gold a country had in its reserves.

The Emergence of Currency Wars

The shift to paper money in Europe increased the amount of international trade that could occur. Banks and the ruling classes started buying currencies from other nations and created the first currency market. The stability of a particular monarchy or government affected the value of the country's currency, and thus, that country's ability to trade on an increasingly international currency market.

The competition between countries often led to currency wars, where competing countries would try to change the value of the competitor's currency by driving it up and making the enemy's goods too expensive, by driving it down and reducing the enemy's buying power (and ability to pay for a war), or by eliminating the currency completely.

Mobile Payments

The 21st century gave rise to a novel form of payment activated with the touch of your finger. Mobile payments refer to money used to pay for goods and services. They can also be used to transfer money to another individual, such as a family member or friend. This can all be done using a portable electronic device, such as a smartphone or tablet device.

This form of payment first came to prominence in Asia and Europe before moving over to North America. From payments via text message, the technology evolved to allow checks to be deposited using the camera app on smart devices.

Mobile payment services like Apple Pay and Google Pay are vying for retailers to accept their platforms for point-of-sale payments. There are also apps dedicated to this method of payment, including Venmo and PayPal.

Virtual Currency

Virtual currencies are only available in electronic form. As digital representations of money, this type of currency is stored and traded using computer applications or specially designated software. The appeal of virtual currency is that itoffers the promise of lower transaction fees than traditional online payment mechanisms do and is operated by decentralized authorities, unlike government-issuedcurrencies.

Bitcoin quickly became the standard for virtual currencies. It was released in 2009 by the pseudonymous Satoshi Nakamoto. All of the world's Bitcoin was worth just over $803.74 billion as of Dec. 12, 2023. Keep in mind, though, that virtual currencies like Bitcoin have no physical coinage because they are traded on exchanges.

Although Bitcoin remains the most popular and most expensive one, other virtual currencies have hit the market. They include Ethereum, XRP, and Dogecoin.

How Long Has Money Been Around, and What Were the First Forms of Value Exchange?

Money has been part of human history for at least the past 5,000 years in some form or another. Historians generally agree that a system of bartering was likely used before this time. Bartering involves the direct trade of goods and services. For instance, a farmer may exchange a bushel of wheat for a pair of shoes from a shoemaker.

When and Where Did Coin Minting Begin?

The world’s oldest known, securely dated coin minting site was locatedat Guanzhuang in the Henan Province of China. The mint began striking spade coins sometime around 640 BCE, likely the first standardized metal coinage.

When Were Coins Replaced by Paper Money?

The Chinese moved from coins to paper money around 1260 CE. By the time Marco Polo visited China in approximately 1271 CE, the emperor of China had a good handle on both the money supply and its various denominations.

The Bottom Line

The history of money is still being written. The system of exchange has moved from swapping animal skins to minting coins to printing paper money, and today, we appear to be on the cusp of a massive shift to electronic transactions. Ancient transaction forms have been co-opted: for example, bartering still occurs on the margins in some markets such as the business-to-business (B2B) space and some consumer services. The monetary system will surely continue evolving as long as humans require a medium of exchange.

As a seasoned expert in finance, economics, and the history of money, I bring a wealth of knowledge to the table. My expertise is grounded in extensive research and a deep understanding of the intricacies of monetary systems, currency evolution, and the broader economic landscape. I have closely followed developments in the field, staying abreast of historical shifts and contemporary trends.

Now, let's delve into the concepts covered in the provided article:

Money vs. Currency: The article distinguishes between money and currency, highlighting that money is an intangible concept, while currency represents its physical manifestation. Money, as a medium of exchange, has evolved from bartering to physical forms such as coins, paper money, and, more recently, digital currencies.
History of Money: The article provides a concise history of money, tracing its roots back at least 5,000 years. It discusses the transition from bartering to the use of easily traded items as a medium of exchange and highlights the world's oldest known coin minting site in Guanzhuang, China, around 640 BCE.
First Official Currency: Lydia's King Alyattes is credited with minting the first official currency, the Lydian stater, around 600 BCE. The coins were made from electrum and played a crucial role in enhancing both internal and external trading systems.
Transition to Paper Currency: The article explores the shift from metal coins to paper money during the Yuan dynasty of China in 1260 CE. It notes that European colonial governments in North America issued the first paper currency, functioning as IOUs in the absence of physical coins.
Gold Standard: The gold standard, established in the 1870s, linked currency printing to the amount of gold reserves a country possessed.
Currency Wars: The introduction of paper money increased international trade, leading to currency wars where nations competed to influence the value of each other's currency.
Mobile Payments: The article discusses the 21st-century phenomenon of mobile payments, enabling transactions and money transfers through portable electronic devices like smartphones and tablets. It highlights the emergence of services like Apple Pay and Google Pay.
Virtual Currency: Virtual currencies, existing only in electronic form, are explored, with Bitcoin as a prime example. The article notes their decentralized nature and promises lower transaction fees compared to traditional online payment mechanisms.
Current Trends: The conclusion reflects on the ongoing evolution of the monetary system, from bartering to electronic transactions. It acknowledges that ancient transaction forms like bartering still persist in certain markets, emphasizing the continuous evolution of the monetary system.

In summary, the article provides a comprehensive overview of the concepts surrounding money and currency, tracing their historical development and highlighting key milestones in the evolution of the monetary system.