The history of money began once people started trading the things they had for the things they wanted. If they wanted a basket of grain, they would have to find someone who had one and was willing to exchange it for something they had. This form of trade is called bartering.
The problem with bartering is that it takes time and energy to find someone who has exactly what you want and is willing to take what you have to offer. It also isn’t always easy to determine what things are worth.
How many animal skins is an axe worth? What happens if you want a plow that is worth a cow and a half? These limitations with bartering led to the creation of money. Buyers and sellers agreed on an acceptable means of payment that establish an items worth. This enables the seller to receive something of value that can in turn be used to buy something else.
The term currency, another word for money, means anything that can be used as a medium of exchange. A variety of things have been used as currency over the years including; salt, elephant hair, cocoa, tobacco, tea, and more recently silver and gold.
Metal coins were invented around 600 BC by the Iron Age kingdom of Lydia. Unlike many types of currencies that could die or rot on the way to market coins are valuable, durable and serve as a relatively compact means to store wealth.
In addition coins further simplified exchange by enabling consumers to make payments by counting the right amount versus weighing it.
For many years the relative value of currencies were measured against gold and silver. Even banknotes (paper currency) were backed by these precious metals and most first world nations adhered to a gold standard. Times have changed though, and national economies have moved away from basing their currencies on metal reserves.
The gold standard is currently not used by any government, including the United States, having been replaced by fiat currency. Fiat currency has no intrinsic value and can’t be redeemed for precious metal reserves. The only thing that gives fiat money value is the faith placed on the government that backs it. It makes one wonder, could any fiat currency, even the US dollar be at risk of losing much of it’s buying power in a hyper-inflationary environment?
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