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The history of money

Published: 8. februari 2016

Money has been part of history for the last 3 000 years. Before money, bartering – direct trading of goods and services – was used. The invention of money simplified business transactions greatly. However, have you ever thought of how it all began? Do you know the origin of the word cash? And who invented the banknotes? Let us take you on a journey through the history of money.

Egyptians used gold currency

The earliest money that we know about was made of pure gold and dates back to the 3rd millennium BC in Egypt. The gold had standardised weights and values. The smaller amounts, called deben, had the shape of golden rings. The unit used for measuring the currency was called shat and was the equivalent of 7,5 grammes of gold. One deben was worth 12 shat and was the same as 90 grammes.
Historians believe that the Biblical reference to money in Deuteronomy 14:25 is a reference to the ancient Egyptian ring system.

Turkey began minting coins

Lydia, the Iron Age Kingdom in today’s Turkey, minted the first official currency in 600 BC. The coins were made from Electrum – a mixture of silver and gold that occurs naturally – and stamped with striking motives that acted as denominations. The first coin ever minted featured a roaring lion. The coins had irregular sizes and shapes and had inscriptions only on one side. They came in standardised weights from 0.15 grammes to 14 grammes.
A century later the Lydian king Croesus, who is still famous for his enormous wealth, started to mint coins in pure gold and silver. The stamps on the coins showed the heads of a lion and a bull.

Minting was spread over the world

The techniques of minting coins were quickly copied and further refined by the Greek, Persian, Macedonian, and later the Roman empires. These coins were made from different metals such as silver, bronze, and gold, and had different values.
Independently from Lydia, China also started to use coins, based on miniaturised metallic reproductions of tools and agricultural symbols. Later, the Chinese also adopted rounded coins with inscriptions of Chinese characters. The word cash was initially used to describe this type of round, bronze coins with square holes, called kai-yuans.

China created the first paper money

As it became inconvenient to carry a large number of metal coins from place to place, the Chinese started to use money made of leather. These one-foot-square pieces of white deerskin with colourful borders could be considered the first documented type of banknote.
Around the 9th Century AD, the first official paper currency was introduced in China. The authorities suggested that the merchants should exchange their metallic coins at the government treasury for paper notes. These paper notes became known as fei kian; flying money, due to its tendency to be blown away by the wind. A few decades later the use of paper money was fully developed.
Over this 500-year period of early Chinese paper money, the production of paper notes grew so much that inflation soared. This forced the Ming Empire to abolish the paper currency.

Marco Polo took paper money to Europe

The Venetian traveller Marco Polo became familiar with the fascinating world of paper money when he visited China in 1200 AD. By that time the emperor had an efficient paper money operation and Marco Polo said that “the emperor of China makes so many notes each year that he could buy the whole treasure of the world, though it costs him nothing.”
Once back home, Marco Polo was met with disbelief when he reported about the Chinese paper money, and it took nearly another thousand years before paper money came into use in Europe.

Swedish banker sentenced to death

In 1661, the Stockholm Banco introduced Europe’s earliest modern-style banknotes where each note was worth a fixed sum. It was such a success that the bank overextended itself and went bankrupt. Johan Palmstruch, the general manager of the bank, was at first charged with the death penalty due to irresponsible book-keeping, but the government lowered the sentence to prison and expulsion.
Despite this bad example, other European countries soon followed the Swedish lead. In conjunction with the establishment of the Bank of England 1694, the era of modern banking emerged.

Cash is king in retail

The shift to paper money increased the ability of international trade. Today both banknotes and coins continue to change and develop. Even though there are plenty of new ways of paying, for instance with credit cards and electronic transactions, cash is still king when it comes to retail. Cash is the most commonly used form of payment in retail, particularly for smaller purchases of €20 or less.

Research sources and places to read more about the history of money: