History of money: From clay tablets to legal tenders

History of money: From clay tablets to legal tenders

The history of money also parallels the history of human civilisation. It would be impossible to fully embrace modernity without embracing money. After all, the use of money pervades across critical facets of modern living.

Money is not a product of the modern contemporary society however. This begs the questions: Who invented money? When did the use of money start? Where did money originate?

According to the annals of history, people from the ancient times were already implementing loose systems of ascribing value to a particular object. They use these systems in trades or exchanges, as well as in guaranteeing debt obligations. Past the timelines of history, modern societies have finally adopted a legally structured system centred on using legal tenders and other instruments as mediums of payment.

The history of money: Barters and clay tablets in ancient times

The history of money dates back to ancient times. Around 9000 BC for example, ancient people would barter goods they had in surplus for ones they lacked. Livestock including cattle and produces such as grains were the popular mediums of exchange. These commodities were the first money.

Writing emerged in the Near East around 8000 BC as an economic necessity—particularly as an instrument for recording agricultural outputs and other trade transactions. By the end of 4000 BC, a more rigid writing system developed in the ancient civilisation of Mesopotamia.

In his book The Ascent of Money: A Financial History of the World, Harvard professor Neil Fergusson discussed the first appearance of an apparent banking system in Babylonia about 4000 BC. To be specific, archeological excavations revealed clay tablets bearing inscriptions of official records of debts.

Actual inscriptions in the tablets included particular payable amounts expressed in number of grains or barleys. Although there were no formalised monetary instruments that time, it is interesting to note that these clay tablets were identical to modern coins and legal tenders because they represented a unit of value. Moreover, these tablets were the first commodity money because their values come from an actual commodity.

Commodity money replaced bartering. Note that barter trade is an inefficient medium of exchange or mode of payment because it requires direct and immediate exchange between actual goods and commodities. These goods and commodities may not always be available due to production limitations, including seasonality.

The history of money: Cowrie shells in China and metal coins

About 1500 BC, cowry shells obtained from islands in Indian Ocean became the official medium of payment and thus, an accepted form of commodity money in China. According to Gerry Bailey and Felicia Law, these shells became so important among the Chinese that they subsequently became the inspiration behind the Chinese character for money.

The Chinese also used miniature tool replicas such as spades and knives casted from bronze as a medium of exchange around 1000 to 200 BC and round metal coins by 600 to 300 BC. Around these periods, civilisations across the globe were also using attractive items as means of exchange, especially for acquiring more useful commodities.

People in Lydia, a kingdom in Asia Minor or modern day Turkey under King Alyattes, invented crude coins in 560 BC. They also produced and used separate gold and silver coins. This marked the emergence of the Lydian currency.

The use of coins also spread in Greece around 600 to 570 BC. Macedonian King Alexander the Great fixed the ratio of silver to gold as ten to one around 336 to 323 BC. Granaries in Egypt became banks and Alexandria hosted the central bank of the Macedonian empire. This setup lasted from 330 BC to 30 BC.

Other societies around the world adopted their respective currencies. Rome, for example, minted and circulated silver coins beginning 269 BC. Britons were using swords as a form of currency around 54 to 30 BC according to Julius Caesar.

The history of money: Paper money, cards, and digital payments

The Song Dynasty in China introduced and used the first paper money in 910. When Marco Polo travelled to China around in 1290, he subsequently introduced this form of currency in Europe. Gold coins, however, renamed popular across Europe and in international commerce. Hence, Europeans digressed from adopting paper money not until in 1661 when Sweden printed the first bank notes. The use of monetised paper marked a turning point in the history of money.

There are many reasons for the eventual acceptance of money. The most important of which centres on the fact that paper money can be mass produced unlike limited precious metals including gold and silver. Of course, despite this feature, central banks of different governments, normally, regulate the production of money.

With the arrival of the digital age, cashless transactions emerged. Western Union launched the first electronic money transfer via telegram in 1860. In 1946, John Biggins invented the so-called charge-it card—the first credit card in history.

Cashless and digital payments became more popular at the dawn of the new millennium, especially with the emergence of electronic commerce, mobile and Internet banking, and smart communication devices. Technology thereby became a critical facilitator in advancing the history of money.

Today, paper money remains prevalent although digital records expressed most of the current value of money or in other words, the amount of money held by individuals or organisations.

The emergence of decentralised cryptocurrencies or digital currencies including Bitcoin beginning 2009 is currently challenging the existing landscape built on paper money or more appropriately, legal tenders.