Evolution of Money By Fahmida Mehreen
Money was not invented by a single nation at a single time. Money is not just coins and notes; it is anything humans agree to represent the value of goods and services.
During early times, people exchanged goods and services in exchange of other goods and services since there was no other medium of exchange to facilitate the process. But, this posed certain difficulties – for barter to occur between two parties, both parties need to have what the other wants. There was a need for mutual demand for the barter to take place. Also, there was the problem of a lack of common measure of value and the difficulty of storing wealth since many of the bartered goods were perishable by nature.
This led to the need to develop a medium of exchange for transactions. Firstly, there was commodity money, the earliest form of which is barley. People assigned and trusted a certain amount of value with a bag of barley. People would go to the market with barley in hand to buy goods and services. However, this eventually led to the idea of a strong form of money which is more durable and easier to carry around. For example, in ancient China, they used cowrie shells or bronze shells, and this has evolved into the coin which was first set by Lydians in modern day Turkey in 640 BC.
However, despite being a convenient mode of transaction, cowrie shells and bronze shells had the limitations of immobility in case of overseas transactions.
Thereafter, in China, the Tang Dynasty, initiated transactions in tens and thousands of coins, which made it difficult for people to keep track. So, the government or the authority started to issue promissory notes (essentially I.O.Us) which would record the exact amount of gold coins the individuals wanted which he can then change into physical money from the bank or treasury. This practice of issuing promissory notes started being practiced all across the land and people started trusting the value of these paper notes. Gradually, merchants realized that it was more convenient to convert these paper slips into gold coins rather than carrying around gold coins. Soon, they thought instead of going to the trouble of converting these paper money into coins, why not directly trade these paper notes for its own worth. Thus, began the concept of the modern-day paper money where the paper note itself holds a certain amount of value worth transacting. Then the government caught on the idea and began to print paper money.
The idea spread eventually into Europe during the 13th century, especially in Italy, through travelers like Marco Polo, where the concept began to take a strong hold. The Italian states like Venice, Florence and Milan were the economic dynamos of Europe and the first truly great trading cities. Since they were almost always at war, they needed a convenient system to carry around the cash. So, the practice of promissory notes as holding value as money began in Italy based on the tales from China. However, the merchants would not pay the seller directly rather pay at a bank in his local town. The bank, which had its branch in the seller’s town, issued the money to the seller on the basis of the promissory note which was given to him by the merchant. Thus avoiding the hassle of carrying around physical money across the land.
This paper system eventually was adopted in England and in 1694 the Bank of England was established, and citizens were encouraged to exchange deposits for hand-written notes that promised to pay the bearer the sum of the note on demand. England desperately needed cash to bankroll King William III’s war against France. Soon afterwards, in order to accommodate the requirements of day to day activities of various nature the bank started to issue notes in various denominations from small to large. Thus, it continued for decades until in the 1980s when credit cards and debit cards started being used. Today, it is an integral part of consumer transactions worldwide as it gives consumers the freedom from physical cash and makes possible instant transactions. Another popular form of money is mobile wallet i.e. bKash or e-money such as Paypal where customers have an e-account to do monetary transactions.
Money was not invented by a single nation at a single time. In fact, its evolution derives from the universal need of people all over the world throughout the passage of time to transact through a common platform, one which everyone trust. The form of money has been modified and re-modified according to people’s convenience and requirements from animals or barley as commodity money to coins to paper money all the way to today’s virtual money. It’s ever so dynamic that it only mirrors the vast evolution of man himself.