Money

Money… What actually is money? Why does everyone need money? Who creates money and what role does money play in a nation’s economy? To have a basic comprehension of  the concept of money, we must first understand the history of money and how it affects our daily lives. Money is a form of legal tender issued by a country’s central bank in order for it to be accepted as a medium or value of exchange, especially for the purpose of conducting trade. In the past, the first system adopted by civilizations worldwide for the exchange of goods and services was the barter system.

The Early Days

In the early days of doing business, people used their excess goods or personal belongings to trade with one another. From 9,000-6,000 B.C., people often used livestock as a medium or value of exchange. As the farming industry further developed, people began using their crops as a medium of exchange. However, around 1,200 B.C., China started using cowrie shells as a medium of exchange. Thus, the first form of money was officially introduced as people started using cowrie shells to buy and sell goods and services, replacing the earlier barter system. This monetary system was further developed around 1,000 B.C. when China started using metal-based cowrie shells as money. This was the first metallic form of money to be developed. Besides metal-based cowrie shells, other metallic tools such as knives and spades were also used as money in China. Metallic forms of  money were  all developed based on the cowrie shell monetary model. China’s first metallic coinage were also sometimes strung together to form a chain. The first form of silver-based coinage was later developed around 500 B.C. when the first evidence of silver being used as money was found within the region of modern-day Libya and Turkey. Silver-based coinage was further improved during the time of the Greeks, Persians, Macedonians and Romans. The value of silver-based money was differentiated depending on the design of the pagan God or emperor on the face of the coin. Unlike the Chinese model of metal-based money, this new coinage system used valuable resources such as silver, bronze and gold. Hence, this form of money had more intrinsic value.

Paper Money

The era of paper money began in 118 B.C. when China first created leather-based money. This unique form of money was designed using a square-foot of white deerskin edged in vivid colour. Paper money was further developed from the 9th until the 15th centuries as China began putting more paper money into circulation. However, inflation began to have an adverse impact on the economy with the rise in the prices of goods and services due to the overwhelming supply of paper money in China. China finally then decided to do away with paper money because of the  nagging problem of a continuously rising rate of inflation. In 1816, Europe’s monetary system underwent a significant change when England first introduced the gold standard to counter their rising rate of inflation. Gold was set as a benchmark for the value of paper money. This meant that the English pound was pegged to a certain measure of gold. The United States of America started using the gold standard too around the year 1900. However, the fate of  the dollar took an unfortunate turn for the worse during the great depression of the 1930s. The United States of America then started a worldwide movement to end the gold standard.

Fiat Money

By 1971, the U.S. dollar was no longer backed by anything of value such as silver and gold. Today, it is a purely fiat or unbacked form of paper money as all other silver and gold-backed currencies were  withdrawn altogether from circulation. Money today no longer carries a pledge. With fiat money, legal tender issued by central banks are no longer backed by gold, and are only backed by the perception of public confidence in the stability of their government and the productive capacity of the country that issues them. A perceived value of paper money may vary from country to country, and may even be destroyed altogether if what happened to modern-day Iraq were repeated elsewhere, but silver and gold will always be accepted as money in every corner of the world as they have been for the past several thousand years…