Money is the legal tender declared officially acceptable by the government in return of a service or a good. This is a worldwide-accepted definition of money. Simply put, ‘Money’ is a medium of exchange that provides us with the ability to buy anything – tangible or intangible.

All the different countries in this world have separate monetary exchange system or currencies that the residents use within the boundaries of the nation. They have to exchange the currencies while traveling to a different country to carry out transactions. The scenario was entirely different when man first started carrying out transactions. Also, the currencies and e-money that we are aware of today were not prevalent back then.

How did a monetary system start?

Tally sticks were the origin of an account keeping system although it is not proven that they served as a monetary system for trade. The carved animal bones or the wood sticks assisted as a record-keeping instrument for the primitive man. The next came was Barter system.

Barter system was the first clear way of transaction that was carried out by the people of the ancient civilizations. To buy one thing a person generally had to exchange another item, which they had, in abundance or in no need of. This was how the barter system worked and this continued for a long period before the evolution of a token form of payment.

The development of the first coin occurred in Turkey during the 600 BC under the patronage of King Alyattes of Lydia. Slowly and steadily, the coins evolved into currency notes during the 1660s. Credit cards came into the scene much later during the 1940s.

Time	Event
6000 BC	Barter system prevalent where one person carries transactions by exchanging two or more commodities.
1100 BC	The Chinese started using replicas of goods made out of bronze as a form of token for payments.
600 BC	The first currency came into existence in in Lydia (now part of Turkey).
1250 AD	A Gold coin was minted in Florence and named Florin, which began to be used as currency all over Europe.
1290 AD	With Marco polo’s travels to China the concept about paper currencies came into ideation.
1661 AD	The first banknotes started coming out in Sweden, but these did not get the much required hype.
1860 AD	The emergence of Western Union brought about a revolution in fund transfers electronically.
1946 AD	The launch of the first Credit Card, named ‘Charge-It Card’
1999 AD	Mobile banking started with the European banks taking the lead with the launch of Mobile handsets.
2008 AD	Issuance of payment cards began in UK to carry out cashless transactions.
2014 AD	The emergence of Bitcoins (Cryptocurrencies) to give a boost to decentralized economic reforms.

Bartering- the very first mode of transaction

This system implies that while purchasing one commodity, the price for the same would be paid in terms of another product or service. For example, when a person bought one sack of corn, he would have to pay two sacks of potatoes. You could swap with anything like food items, any tools, property, clothes, household goods or even an intangible service. This was how people used to carry out transactions earlier. Bartering demanded a coincidence of the want by the other party at the same time. Means, two parties should be in the need of the trade offered by the other at the same time.

Barter system dated back to 6000 B.C. or even earlier and was used by the Mesopotamian civilization as per the records. This system also got another term – ‘Commodity money’. But after a certain period bartering started confusion among the people as they were unable to understand the real worth of their products and thus the exchange rate was somewhat unbalanced. Although bartering is a simple monetary system without complexities, due to many shortcomings like double coincidence of wants and missing standardization of measurements in the trade to name a few, it paved the way to first coinage system.

This turning point brought a noticable a change in the past, present, and future of currencies.

The need for a currency

The use of money in any format for carrying out transactions by humans can be dated back to more than 30,000 years, here in case – tally sticks. So, you can well understand how old the system of using currencies is running. The issues caused by the exchanging of goods and services in the barter system soon gave way to the use of metal and paper currencies that continues even today.

The primary reason for the need of currencies

• It enables trade as a measure of value,
• It brings together societies by giving them the power to reciprocate transactions,
• It preserves the different social hierarchies, and
• It acts as a medium of control.
• It enables deferred payments and storage of wealth.

The emergence of metal coins and paper currencies

Different materials that served as currencies or coins in the early stages:

Cowry shells	Meteorites	Beads	Silver
Copper	Amber	Gold	Lead

Kudos to the Lydians

The Lydians were the first among the western countries to start making use of coins during 600 BC. These coins were made from a metal named electrum, which was an alloy of silver and gold but occurred naturally. These coins had pictures stamped on them, and these served as the denominations.

The concept and use of the coins then spread from Lydia to the other cities in Greece, Persia, and Rome. With every succeeding ruler, the shapes, sizes, denominations, and designs of the coins changed, but the concept of coins as an economic measure went on.

Somewhere between the barter system and the very first minted coins, around 1100 BC Chinese who were using metal spades and weapons for a trade started using smaller replicas of those tools made of bronze for transactions. Contemporary countries along the Indian Ocean were using cowry shells as a currency. Shells and coins are commodity money like the barter system because the price was the intrinsic value of the coin itself.

The coins made of gold, silver, and other metals were heavier to carry, unmanageable to transport in bulk and often involved the risk of theft, and susceptible to debasing, and hence emerged the current day paper money which brought about a massive change in the trading and economy system. When Marco Polo visited China during the 1,200 A.D., he found that the market was full of paper currencies of various denominations. The circulation reached an average pace during 1450 AD in countries like Rome, India, and China, mostly Asia.

And here comes the paper currency…

The credit for designing the first paper currency can be given to the Chinese. As they were the first to invent the concept of paper, so it is evident that they would be the founders of paper currency as well. Before the invention of paper, the Chinese had already started making currencies using leather. The deerskin note – an ancestor of the paper currency – was born in China around 118 B.C. and was used in a large scale for commerce, which eventually was replaced by the paper currency.

The first paper currencies were issued in the 7th century under the Tang dynasty.

Owing to the problems of the coins, the traders decided to deposit the bulk of coins to a trustworthy person and in return, they were given a depositor slip with the worth written on them which could be used later to withdraw the deposited coins. Such promissory notes eventually demanded regularization in the process.

During the Song Dynasty in the 11th century, the evolution of the money saw the true paper money called ‘Jiaozi’. These promissory notes were issued in a timely manner with proper denominations by the regulating authority. The lower the denominations, the higher was the demand. Usually, like modern-day notes, Jiaozis were stamped with the issuing company, a serial number, and seals for security. Jiaozis were printed in multiple seals with special colors from various plants to check the counterfeiting. Although the initial day notes were fragile with a limited time span of 2-3 years and coins were still in use, the notes started collecting popularity and coin started losing its sheen.

Then came the paper note called Chao in the reign of Kublai Khan of Yuan Dynasty when China saw the invasion by Mongolians. Chao was not restricted to regional usage and aging. The Chinese paper money was also backed by the then governments.

Travelers like Marco Polo were the ones to take the concept of paper currency to the western countries in Europe after they returned from the tours in Asia. But Europe could not instantly embrace the idea of paper currency because it did not have the necessary materials to produce these kinds of currencies. After the establishment of the paper mill during 1150 AD, the concept of paper currency slowly started to be realized. With the rise of the Renaissance, the usage of handwritten promissory notes also started becoming prevalent. This practice was adopted and promoted by government institutions.

The financial institutions started giving receipts when people made deposits using currency during the 1500s. From this arose the concept of cheques that are in use even today. With the emergence of paper currencies, there was a shift in the global market and trading patterns. Financial institutions started purchasing currencies from neighboring countries as well to create an economy that would facilitate cross-border trade relations. The more a nation was capable of buying the currencies from other countries, the more flourished was it considered. This goes on at a fluctuating rate with almost every county in this globe. Money has since then been acting as a record keeper of all transactions that have been carried out between people residing in all parts of the world.

Stone Money – an interesting phenomenon in the history of Money

In the 18th century, the inhabitants of YAP area in the Micronesia Island used to travel to the other nearby islands and parts of Micronesia and made a pact with the residents to dig limestone, prepare stones with them and transport back home on the raft. Their stones called Rai were discs with a hole in the center to be inserted across wooden poles. The value of a disc was evaluated with its size, smoothness, quality, and efforts invested in carving and transport.

Although the ownership of the Rais changed with time, being given as a gift in marriages or being exchanged with food and services or even traded during political alliances, the stone money did not move from their places and stayed at the original locations. Everyone in the YAP community knew the owner of a Rai and its value. The stone money was exposed to everyone but shielded from any fraud.

The stone money has been compared with the bitcoins by the economists because they share many similarities. The Yapese mined the Rais at the limestone source and presented the rocks to the community estimating the value based on the quality and efforts bestowed in the process just like miners of the bitcoins who manufacture bitcoin and decide the worth based on the complexity involved. The stone money could not be forged as the ownership was known to each and all just like the bitcoins, which can be identified in the network and cannot be claimed without righteous proprietorship. Although the Rais had owners, they changed while the stones were exchanged similar to the cryptocurrencies, which can be exchanged for goods and services.

Then followed the concept of representative money

When the paper and metal currencies started being used in a full-fledged way, the idea of representational money came into existence. This implied that no matter what the material of the currency was, they all had a fixed value for each currency that has been present by some particular entity. This particular entity could be any financial institution, which had set out specific rules and parameters to make a count of the values of the currencies. This demystified the concept of face value and dimmed the intrinsic value of the money. Gold was in general considered as the parameter for most of the currencies used worldwide and this continued for most of the 19th and 20th centuries.

Cheque is also an example of representative money, which is backed by the balance in the account.

Fiat money – the next evolution in the past, present, and future of currencies

With the due course in time, representative money gave way to fiat money. Governments across the world have been authorized to specify the value of money based on the country they belong to. The payment methods and forms were also legalized, and money came to be acknowledged as a legal tender to make payments with.

Fiat money is also a representative money most of the time, however, it is backed by the government, not by gold. Fiat money has its face value because the government claims so. Most of the representative money has shifted towards the fiat money now. However, fiat money is vulnerable to hyperinflation and may lose its value if produced in the surplus and remain unconsumed. Hyperinflation is the result of an increase in the price of the good and services and creates an imbalance in the demand and supply.

Hello Dollar ($)

The name dollar has its origin in Joachimstha – the place in current day the Checz Republic – then a part of Bohemia. In 1520, when the Checz kingdom of Bohemia started minting silver coins, they inscribed it with the Bohemian lion and named it Joachimsthaler, which was popularly known as Thaler and was eventually adapted as dollar in English.

The sign ‘$’ also has an interesting origin. The Spanish dollar represented with Ps gradually was started being written with S over P and gave way to a sign $ for representing the money. The Spanish Pesos were introduced by the British colonies in the North American areas. Hence, Dollar was chosen as the currency over Pound by North America after gaining independence.

The dollar got legal authorization during 1786, and it was only during 1792 that the government was able to create the U.S. mint and it was able to manufacture coins and circulate them. After the Civil War in 1861, the government began the printing of the dollar bills on a regular basis. Paper currency in the USA was first printed on March 10, 1862. The first denominations that came out were that of $5, $10, and $20 notes. With the Act of March 17, 1862, these currencies got the authority to be used as legal tenders. All the currency notes were required to have the following inscription- “In God, We Trust” by a law enforced during 1955. The national motto was also inscribed first on the notes in 1957, mainly on $1 silver certificates and on all the notes issued by the Federal Reserve that began with the Series 1963.

Dollar was declared fiat currency after 1933 when the US government ceased its exchange with the federal gold. The exchange was completely stopped for the foreign governments too in 1973.
Dollar is now being used by many countries as their legal currency for trade and local exchange and it governs the major dynamics of global economics.

Foreign currency exchange

With the emergence of so many different currencies in the various countries of the world, there arose the need of a mechanism that would enable people to carry out transactions even when they travel to a different country. This was when the foreign exchange services and trading systems came into the prime.

Foreign exchange involves conversion from or exchange of one currency to the other. Popularly known as Forex, it ranges from a transaction as small as changing the native currency to any other currency or vice versa through forex agents or via wired transfer processes, import-export of good or services to transactions worth millions and billions between corporate houses, financial bodies, and governments. As the world trade has increased due to the globalization, the need for foreign exchange has increased multifold.

The world’s major foreign exchange markets are situated in the giant players in the world market like London, New York, Hong Kong, Sydney, Tokyo, Singapore etc. but there is no centralized market for it.

Letter of Credit

Credibility and security are very important in International trade. Usually, in an international trade, when the two parties, buyer and seller do not know each other, the trust cannot be easily established between them; the laws governing the trade are different in both the countries and the systems are different. So, a letter of credit (LC) is issued and is an important payment method where a bank generates a document to a buyer of its credibility and seller can use the letter to mitigate the risk for the payment they expect in return of their products or services.

Through a letter of credit, the seller (commonly called as beneficiary) is backed by the bank (knows as the issuing bank) rather than the actual buyer for the payment. The buyer, in this case, is called the applicant who asks for a letter of credit. In case of the buyer not paying the seller for any reason, beneficiary demands the same from the issuing bank by presenting the documents and upon verification of the claims made by the beneficiary according to the letter itself, the bank is bound to pay.

Once a sales contract is made between the buyer and the seller, the buyer will approach an issuing bank for an LC issuance. Once the bank analyses and affirms the credibility and capacity of the buyer, it issues an LC promising to the seller to pay the agreed demand and payment. The seller also verifies the terms in the letter and cross checks the validity according to the contract. If found correct, seller makes a shipment or demands the amendment otherwise. The LC is also governed by the last date of shipment, the credit value etc. After the shipment is commenced, the beneficiary demands the payment against the letter.

To issue a letter of credit to the buyer or the applicant, the bank asks for securities or cash as a guarantee from the buyer. Banks also charge a fee to the buyer as a part of the service based on the size of the deal.

The Uniform Customs and Practice for Documentary Credits (UCP) has been laid down in 1933 as an umbrella of the governing rules for issuance of Letter of credits by the International Chamber of Commerce.

Any time money – Emergence of ATMs

The idea of dispensing cash from a machine anywhere and anytime by the customers gave the way to ATMs – Automated Teller Machine. Barclays Bank is claimed to install first such machine in June 1967 in London, UK. Initially, the cash was withdrawn using paper cheques issued from the banks, which were machine-readable. Soon, the introduction of pin enabled cards, which verified the debited account, and the customer using a 6-digit pin replaced the paper system and was more secure and resistant to frauds.

The emergence of Electronic and Mobile Banking- a giant leap in the past, present, and future of currencies

The Bank of America initiated a project between 1950 and 1955 under the name ERMA (Electronic Recording Method of Accounting) with the intention of computerizing the financial processes throughout the country. This brought about the system of MICR (magnetic ink character recognition) in 1955, which enabled computers to recognize special numbers that were inscribed in the bottom of the cheques. This allowed the tracking and the managing of accounts of all the transactions carried out through the checks with the help of computers, which were earlier carried out manually and took a huge workforce for the validation and processing. MICR revolutionized the banking systems and remains a standard in the banking world until date.

The online banking became popular with the advent of the internet boom in the late 1990s although the first trace of electronic banking or more popularly known as e-banking or internet banking is found in 1981 when the four major banks of New York city pioneered tests for online banking via computers. Later it became available to all the users who had internet and its 24×7 reach to the customers without the hassle of going to the real banks reformed the banking.

The 21st century saw the rise of two distinct forms of currency transactions- virtual currency and mobile payments. With the help of an electronic device like smartphones, you can carry out payments, and this is what is characterized as mobile payments. You will also be able to send money to anyone located far from you with the help of mobile payments. The recent times have seen the emergence of Samsung Pay and Apple Pay, which have started gaining popularity for carrying out point-of-sale transactions.

The wave of Digital Currency

“Digital currency is the next logical evolution of money”, said Robleh Ali, a digital currency research scientist from Massachusetts Institute of Technology.

An efficient digital currency needs to have three distinct characteristics:

1. A great team working behind the development of an active token.
2. A decentralized network that works on the concept of blockchain technology.
3. Experienced executives to take care of all the proceedings.

The best part about Digital currency is these can be transferred within a very short span of time and allow quick transactions to take place. It has become more accessible than before to send money from one place to the other without the fear of losing out on it or your money falling into the wrong hands. This makes it easy for people to carry out transactions even when they are out on a trip to a different country. You also stand lesser chances of losing your hard-earned money if you store them in the form of digital currency. More and more people are opening up to the concept of digital currencies as and how their economies are expanding.

The evolution of cryptocurrency is the highlight of the past, present, and future of currencies

Many conversations were doing the rounds that the cryptocurrencies could soon become the future of the currencies that are being used to date. The digital currencies are highly secured as these are based on cryptography. The concept behind the cryptocurrencies is quite exciting and unique as well. The underlying idea of these currencies is blockchain. Everything is regulated using a peer-to-peer network, and there is no regulation of a third party like a central authority or a financial institution.

These cryptocurrencies have no physical existence, and all the transactions are carried out using the internet as a medium. The virtual currencies started appealing to the mass as they had the potential to offer the lowest transaction fees in comparison to what undergoes the traditional forms of online payment methods. The fact that a decentralized network operates the cryptocurrencies provides more transparency than the government monitored regular currencies like Dollar, Pound, and the like.

Cryptocurrencies are also termed as virtual currencies. Satoshi Nakamoto was the brain behind the birth of Bitcoins that slowly started surfacing in 2009. The market capital of Bitcoin is around $176.11 billion, and this is just approximately 56.5 percent of the total share of all the cryptocurrencies put together. There have been still some disputes regarding the fruitfulness of investing in these tokens and people are yet to be convinced of the benefits of using cryptocurrencies. Many people fear that the cryptos may fail to make it to the future, but most researchers are pretty sure that these will make a mark in the future.

With the passage of time, a number of other cryptocurrencies and tokens have started coming up and all of them have been fighting for creating a unique existence in the global economy. Blockchain technology has been behind the massive rise and popularity of the cryptocurrency revolution. This holds vast potential for the future and makes the digital currency a massive hit in the coming years. Cryptocurrencies are also, yet to be explored in their full potential and it will be interesting to note the transformation it is going to bring about in the global economy. From Bitcoin to Ethereum and so many other tokens, there lies a great future for the global economy with cryptocurrency.

Some lesser-known fun facts about money

• The paper money is not actually paper but cotton paper that is made from used clothes. Generally, the material is not an ordinary textile but is more resilient and can resist wear and tear. Gelatin is mixed with the paper for extra strength.
• The ink used in the printing is not an ordinary ink but is trackable and has magnetic properties.
• Tax is a major source of income for the governments other than printing the bills.
• During the hyperinflation of 1930, bartering made a comeback in some countries.
• Salt was a very important good in the bartering system and Roman soldiers were paid their salaries in terms of the salt.
• In the primitive era of exchange system, the headcount of the cattle was the symbol of richness. Capital, often used for money, is derived from caput, which means head in Latin and originates from the same concept.
• The stone money of Yap Island was in a donut shape and some of them were as big as a human.
• Julius Caesar was the first human to be inscribed on the coins.
• Worn bills are recycled as mulch.
• Pygg is an orange colored clay used to make cheap vessels called pygg jars for storing money that later evolved as a piggy bank and has no relation to a pig.

Conclusion

Money has evolved from barter system to virtual money and cryptocurrencies. Like any other culture, it retains evolution with the advent of human societies and technology. So, keep expecting to see more evolutions that will enhance the history and journey of the past, present, and future of currencies.