The history of money: How currency evolved from pelts to paper

Close-up of a U.S. $100 bill, showing Benjamin Franklins eyesImage: Close-up of a U.S. $100 bill, showing Benjamin Franklins eyes

In a Nutshell

The history of money can be traced back thousands of years. The barter system likely originated 6,000 years ago. The first coin we know of is from the 7th century BC and the first paper money came into the world around 1020 AD. Eventually, medieval banking systems gave way to the gold standard, which in turn gave way to modern currency.
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The history of money is fascinating and goes back thousands of years. From the early days of bartering to the first metal coins and eventually the first paper currency, money has always had an important impact on how we function as a society.

In this guide, we’ll cover the history of money and how human beings have advanced from using a barter economy to a complex financial system with several forms of currency.

What is money?

Money often has no intrinsic value. Instead, money is an object with a value placed on it, allowing for the trade of goods and services. Some money, such as metal coins, has actual value in terms of the materials used. However, even these currencies derive their monetary value more from the faith people in a society put in them. Throughout the evolution of money, currencies have taken several different forms. 

When was money invented?

The earliest evidence of money comes from around 3,000 BC in ancient Mesopotamia (modern-day Middle East). Citizens would draw agricultural symbols on clay tablets to represent debts. This is the first time in history we’re aware of people using a symbolic representation of value rather than a physical exchange, as in a barter market system.

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History of bartering

Before the invention of money, people traded goods and services using the barter system. One farmer might trade livestock for vegetables, while another may trade labor or lumber for livestock. These transactions were the early building blocks of our modern economy and would go on to create the future of money the world knows today.

The history of bartering dates back to 6000 B.C. when Mesopotamian tribes introduced the concept to the Phoenicians. Goods were exchanged in the absence of money, including things like tea, salt, weapons and food. As time went on, bartering continued to evolve, with Colonial Americans trading pelts, crops and muskets. 

First metal money — coins

The first metal coins date back to the 7th century BCE in Lydia (modern Turkey) and China. In China, metal coins were made of bronze and shaped like farming tools. In Lydia, coins were made of an alloy of gold and silver called electrum. Lydian staters were the first coins to be officially issued by a government body. Early iterations of coins were also used by ancient Greeks, starting in the late 7th century BC.

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Lydia stater coin, believed to be the first coin

First paper money

The first paper money was created in China during the Song Dynasty in the 11th century CE. Trade played a huge part in its creation. For hundreds of years before the invention of paper money, bronze and copper coins were the main currencies in China. As international trade increased, the weight of carrying these coins became a barrier. 

Around 900 CE, merchants trying to get around the weight issue of carrying coins began trading transaction receipts. Early Song authorities gave a few shops a monopoly on issuing these deposit receipts. Eventually, in the 1020s, the government took over and began issuing the receipts as the first official paper money.

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Paper money from the Song Dynasty, widely believed to be the first paper money

The introduction of banks

Today’s banking system in the West has its roots in the early to mid-Middle Ages. In this time period, three primitive banking professions emerged:

Pawnbrokers — They functioned similarly to modern-day pawnshops, offering temporary loans in exchange for personal property.
Money-changers — These citizens charged a fee to exchange currencies.
Merchant bankers — At the top of the social classes, these wealthy citizens offered loans from either personal funds or from partners’ funds.

Many of these banking operations originated in regions of Italy, including Venice, Florence and Rome. Over time, these services converged with the onset of modern banks.

In the United States, a national bank began with a plan by Alexander Hamilton, the first Secretary of State. He thought a national bank would help stabilize the nation’s credit. The first bank in the U.S., The Bank of the United States, was established in 1791.

The gold standard

In 1816, gold became the standard of value in England. Each bank note represented a certain amount of gold, so only a limited number of bank notes could be printed. This gave previously unbacked currency some semblance of value and stability. By 1900, the United States had followed suit with the Gold Standard Act. While the gold standard would slowly fade out of usage by the 1970s, the gold standard played an important role in the history of U.S. money.

Modern-day money

Now that you have a better understanding of the history of currency, let’s take a look at how it’s used today. Along with paper money and coins, modern-day money has also branched out to include credit and debit cards, online payments and cryptocurrency.

Credit cards & debit cards 

When it comes to convenience, credit cards and debit cards may be some of the most popular choices. 

Credit cards allow lenders to set a credit limit on your card, so you can spend up to a certain amount before you have to start paying it back to continue using your card. The history of credit cards in America goes back to the 1950s when Diners Club issued the first charge cards.  

A debit card, on the other hand, holds a set amount of money from your bank account, which decreases with each purchase you make. Debit cards did not make their debut in America until after credit cards. Some point to the Bank of Delaware’s debit card pilot program in 1966 as the first time debit cards were used in America. 

Online payments

Money used to be exchanged physically, whether people paid with coins or paper money. However, with the internet boom and the growth of e-commerce, online payments became more popular.

The first online marketplace was called Boston Computer Exchange, and it launched on the web in 1982. By 1995, Amazon and eBay launched, and both sites made 1 million sales by 1997. In 1998, PayPal launched, providing online shoppers with a more secure way to make payments. In 2009, Square launched, helping retailers accept debit and credit card purchases online and in stores. Today, around 96% of Americans have made purchases online.

Digital currency

In 2009, bitcoin launched and became the first successful decentralized cryptocurrency, which means it’s not controlled by a central political or corporate authority. After its success, other cryptocurrencies like Litecoin and Dogecoin appeared, trying to stake a claim in the market. 

These currencies have a value assigned to them, just like any other type of money, but they use cryptographic technologies to ensure secure transactions. Cryptocurrency transactions represent billions of dollars traded each day.  

The impact of money throughout history

Money is arguably one of the most important parts of human history. Its invention allowed our ancestors to break out of the constraints of the barter system, where they had to physically exchange goods and services. As societies became larger, you can imagine how difficult and complex bartering may have become: If you don’t have the necessary goods for a direct trade, you might have spent hours or days arranging trades between three, four or even more artisans. Or, you may never have been able to come to a trade that all parties deemed fair.

Likewise, paper currency allowed society to function more easily on a wider scale. Because paper currency was much lighter than heavy metal coins, it made international trading more convenient.  Today, the decentralization of digital currency may lead to an even wider global economy.

What’s next: How can I manage my money?

Knowing about the history of money and how it impacts your life can be important, but understanding how to manage your money may be even more crucial. Throughout the history of money, people have found ways to save, invest and spend wisely — important skills for building a solid financial foundation.

If you want to manage your money better, one skill you may find helpful is learning how to budget. Budgeting can help you get and stay out of debt, build an emergency fund, save up for retirement and more.