The History of Money

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by Mary Bellis
Updated March 26, 2017

Money is anything that is commonly accepted by a group of people for the exchange
of goods, services or resources. Every country has its own system of coins and paper
money.

BARTERING AND COMMODITY MONEY

In the beginning, people bartered. Bartering is the exchange of a good or service for
another good or service. For example, a bag of rice for a bag of beans. However, what
if you couldn't agree what something was worth in exchange or you didn't want what
the other person had?

To solve that problem, humans developed what is called commodity money.

A commodity is a basic item used by almost everyone. In the past, items such as salt,
tea, tobacco, cattle and seeds were commodities and therefore were once used as
money. However, using commodities as money had other problems. Carrying bags of
salt and other commodities was hard and commodities were difficult to store or were
perishable.
COINS AND PAPER MONEY

Metals objects were introduced as money around 5000 B.C. By 700 BC, the Lydians
became the first in the western world to make coins. Countries were soon minting
their own series of coins with specific values. Metal was used because it was readily
available, easy to work with and could be recycled. Since coins were given a certain
value, it became easier to compare the cost of items people wanted.

Some of the earliest known paper money dates back to ancient China, where the
issuing of paper money became common from about AD 960 onwards.

REPRESENTATIVE MONEY

With the introduction of paper currency and non-precious coinage, commodity

money evolved into representative money. This meant that what money itself was
made of no longer had to be very valuable.

Representative money was backed by a government or bank's promise to exchange it

for a certain amount of silver or gold.

For example, the old British Pound bill or Pound Sterling was once guaranteed to be
redeemable for a pound of sterling silver.

For most of the nineteenth and twentieth centuries, the majority of currencies were
based on representative money through the use of the gold standard.

FIAT MONEY

Representative money has now been replaced by fiat money. Fiat is the Latin
word for "let it be done." Money is now given value by a government fiat or decree. In
other words, enforceable legal tender laws were made. By law, the refusal of "legal
tender" money in favor of some other form of payment is illegal.

$$$

The origin of the "$" money sign is not certain. Many historians trace the "$" money
sign to either the Mexican or Spanish "P's" for pesos, or piastres, or pieces of eight.
The study of old manuscripts shows that the "S" gradually came to be written over
the "P" and looking very much like the "$" mark.

U.S. MONEY TRIVIA

On March 10, 1862, the first United States paper money was issued. The
denominations at the time were $5, $10, and $20. They became legal tender by Act of
March 17, 1862. The inclusion of "In God We Trust" on all currency was required by
law in 1955. The national motto first appeared on paper money in 1957 on $1 Silver
Certificates and on all Federal Reserve Notes beginning with Series 1963.

ELECTRONIC BANKING
ERMA began as a project for the Bank of America in an effort to computerize the
banking industry. MICR (magnetic ink character recognition) was part of ERMA.
MICR allowed computers to read special numbers at the bottom of checks that
allowed computerized tracking and accounting of check transactions.

https://www.thoughtco.com/history-of-money-1992150

The History of Money

T alking about the history of money may seem like a strange concept.
Hasn’t money been around for most of human history? Isn’t money just a
way to pay for something? Is there really much of a history behind money?
Money is actually a general term for a concept that has changed throughout
history and is still changing today. The history of money has played critical
roles throughout many other parts of history and it’s not going away anytime
soon.

Without further ado, let’s talk about where money came from and where it’s
going today.

The beginnings of civilization and the barter system

Money is as old as human civilization itself. The first “money” was
discovered in Anatolia – the birthplace of human civilization. That money
was obsidian, and it was extremely valuable due to its use in crafting high-
quality tools.

Between 12,000 and 9,000 B.C., early civilizations used a number of

different valuable items as early forms of money. Along with obsidian, for
example, early civilizations were known to use cattle as a bartering tool.

Of course, trading obsidian and cattle is more of a bartering system than an

actual currency. But money is a general term for any object that is accepted
as payment for goods and services. Today, most of our money is currency.
But if you paid the pizza delivery guy using seashells, then those seashells
would be considered money as well (and the delivery guy would probably be
really sad).
 The main difference between the early history of money and today’s money
is that early money had multiple uses. You could use cattle and obsidian as a
form of wealth storage and you could use it to pay for things. You
could also use both cattle and obsidian for more practical purposes. If you
ever needed to eat, for example, then you could slaughter your cow. If you
needed tools, you could use your obsidian. Today’s money is totally inedible
and cannot be crafted into very many usable tools.
As you may have realized, these types of money transactions are limited by
one major flaw: there needs to be a “coincidence of wants”. What if someone
doesn’t need cattle or obsidian? How are you going to pay that person? This
is not an ideal system.

Ultimately, in ancient times, the things with the greatest utility were accepted
as the best forms of money. Most people in early civilizations could find a
good use for a cow, for example, which is why they were happy to accept a
cow as payment.

Ancient Babylon sets the first rules governing money

The Code of Hammurabi is the best preserved set of legal principles from the
ancient world. Along with telling us about the laws and punishments of
ancient Babylon, it tells us how they viewed money and market transactions.

Hammurabi’s Code set a number of money-related principles that would

form the basis for the currency of future civilizations. Those rules included:

 Set interest rates for debt

 Fines for wrongdoing

 Compensation for victims of criminal activity

 Legal contracts regarding business practices and private property

Over time, these practices came to be accepted throughout Babylon and the
rest of Mesopotamia. However, nobody had yet created a common currency
system. Money exchanges were usually performed with gold bars or silver
bars. The value of a metal bar was assessed based on its weight.

While Babylon lacked a common currency, they did create something called
the shekel, which was a defined amount of weight for different materials.
You might be asked to pay a shekel of barley as a fine, for example, or a
shekel of gold.

Who made the first currency?

Early Chinese civilizations were the first to use standardized currency. As
early as 1,000 B.C., the Chinese were creating miniature knives and spades
that had a symbolic value instead of a practical value.

A few centuries later, civilizations in China, India, and the Aegean region all
started developing coins as currency. Coins were different depending on
where they were made. Chinese coins, for example, had a small hole in the
middle that allowed them to be conveniently strung together. Greek coins, on
the other hand, were branded with insignia.

During this period – between 700 B.C. and 500 B.C. – many coins were
made from electrum. Electrum is a naturally-occurring alloy of gold and
silver. The only major group known to use gold coins at this time were the
Lydian merchants. The Kingdom of Lydia was located in modern-day
Turkey and holds the title of the first known civilization to use gold coins.

Why would people make coins out of metal instead of other materials? The
first major reason is that metal coins carried some inherent value. They could
be melted down and used to make weapons, tools, armor, and other practical
things, for example. Just like the cattle and obsidian ore used in years past,
metal coins carried practical value along with their official stamped value
from various nations.

Roman currency
Rome was one of the world’s greatest civilizations and their use of
standardized currency would affect the way we use currency today.

Roman currency changed many times throughout the history of the

civilization. Coins were made from gold, silver, brass, and copper. They had
intrinsic value (you could use the gold, silver, brass, and copper for many
different things) but that intrinsic value was slightly less than their stated
value in Rome. The Roman coin was known as the denarius and was similar
to the Egyptian tetradrachm.

For whatever reason, the Roman Republic never minted coins until 300 B.C.
This is considered late because many other neighboring civilizations and city
states already had coinage systems in place. By the time the Romans
established their own coinage system, they were already the most dominant
force in Europe.

Roman coins typically displayed important symbolic images about the

Roman Republic, including Roman gods and goddesses. The majority of
coins were printed on silver and only the official Roman mint – located in
Rome – was allowed to manufacture high-denomination coins in silver.
Neighboring cities and regions were free to craft coins of lower value,
however.

In 27BC, Rome went from being a republic to an empire as Augustus took

autocratic power. This would be a landmark moment in the Roman coinage
system. After 27 B.C., Roman coins no longer depicted gods and
mythological figures. Instead, they featured images of the Roman emperor at
the time in side profile – just like many of today’s coins in use around the
world feature side profile images of a nation’s monarchy.

Over time, the value and metal composition of coins would change.
Eventually, Romans created coins for many different values, including 1/120
of a denarius (called an “Uncia”) and 1/30 of a denarius (called a “Triens”).
Today, we call similar denominations pennies and quarters.

Currency in medieval Europe

In Medieval Europe, silver coins were widely in use until the 13th century,
when gold coins once again became a more accepted standard. Gold coins
were used throughout England and mainland Europe.
However, not all countries made their own gold coins, and not all gold coins
were worth the same. Spanish and English gold coins, for example, were
particularly well-accepted. Throughout Medieval Europe, merchants
struggled to find an accurate way to convert gold and silver coins into
different currencies and trade for goods and services across the continent.

That’s why Bills of Exchange became particularly popular. Bills of Exchange

were a key part of trade in Medieval Europe and the Middle Ages. They
allowed merchants to travel across the continent without carrying lots of gold
coins. In a lawless continent, it was a bad idea to make long treks while
carrying a lot of money.

Bills of Exchange were the earliest form of credit. Someone could buy goods
and services from a merchant and present that merchant with a Bill of
Exchange. That Bill of Exchange could be redeemed at cities across Europe.
Provided the seller and buyer were both reputable individuals, the bill could
be a medium of exchange and an effective way to store value. It was an early
form of credit and an early form of a check.

What about paper currency?

We have yet to talk about paper currency. Paper currency was not as popular
throughout early history because it did not have intrinsic value. You could
always melt ore coins down into gold, silver, bronze, and copper, but you
couldn’t do the same with paper money.

However, these limitations didn’t stop paper money. The Chinese were the
first known civilization to use paper money. Beginning around the year 800,
China would use paper money for several centuries.

There was one more problem with paper money: it was easy to print en
masse without having anything to back its value. With gold and silver coins,
the production process required extracting ore from the ground and operating
some type of manufacturing facilities. These processes took time, power, and
money. Paper money was much easier to create and, as a result, it was
produced in huge quantities throughout China.

Eventually, Chinese paper currency dropped in value and became virtually

worthless. In the 15th century, the use of paper currency stopped in China and
would not return for several hundred years. It’s important to note that no
country in Europe used paper currency during this period, although
banknotes were a similar idea that would soon become popular.
1800s and the rise of the gold standard
The gold standard was an innovative concept that combined the best aspects
of paper money with the best aspects of coins. The gold standard allowed
central banks to create money while also having that money backed by
precious metals.

Prior to the adoption of the gold standard, banknotes had never been tied to
any item of value. While paper money and banknotes had existed, their worth
had nothing to do with gold.

The gold standard would change a number of times throughout history. It

started out as a ratio of 15 parts silver to 1 part gold. Then, after the pressure
of two World Wars and the Great Depression, the value of gold was linked to
the world’s most stable currency at the time: the U.S. Dollar. Between 1944
and 1971, the Bretton Woods system “pegged” the value of gold at $35USD
per ounce.

The Bretton Woods system stabilized currencies in developed countries

around the world but also caused some issues. Like any common currency, it
linked the economies of multiple countries together – which isn’t always a
good thing when one country starts to falter. In 1971, Nixon ended the
Bretton Woods system, which allowed both U.S. currency and gold to have
more fluid values.

Fractional reserve banking

Today, all banks operate on the principle of fractional reserve banking.
However, a few centuries ago, fractional reserve banking seemed like a
bizarre concept.

Fractional reserve banking means that most of the currency in circulation

does not physically exist. That currency exists as numbers on a ledger or as
decimal points on a bank’s account statements. With fractional reserve
banking, banks are only required to keep a fraction of their customers’
money in the bank’s vault.
Banks are legally required to give that money to customers when withdrawn.
However, if all customers were to withdraw their money at the exact same
time, the bank would be overdrawn and forced to shut down. Thus, fractional
reserve banking is a form of risk and trust: we trust that everybody in the
country will not suddenly want to withdraw the money and we risk losing all
of that money if everybody chose to do that.
Present day: the digital age
The advent of computers may have been the most important moment in the
history of currency. Today, relatively little physical currency exists in our
world. The majority of currency consists of numbers on computers and will
never be reproduced in physical form.

There’s nothing wrong with that. After all, many of today’s goods and
services require no physical money transfer. You can pay for nearly anything
via credit card and entire stock markets are operated over computers.
It’s important to remember that the difference between total money and
physical money existed before the digital age. Fractional reserve banking is
not a new concept – the electronic age just made it easier.

In the United States, it’s thought that only about 10% of the currency actually
physically exists. The rest is a product of the fractional reserve banking
system. Some countries have more than 10% reserves, while others have less.

That’s not a bad thing. This allows an economy to grow without being
restricted by a physical money supply. Without a fractional reserve system, it
 would be difficult for a national mint to keep up with the economic demands
of the entire country while also maintaining stable economic growth.

Modern monetary policy

Money is more complicated today than it has ever been in the past. Today,
countries must carefully govern their monetary policy to achieve the
following goals:

 Low unemployment
 Stable inflation

Central banks use a number of different tools to achieve these goals. They
can raise and lower interest rates, for example, which is the most popular tool
used by central banks. They can also adjust government spending, raise or
lower the reserve requirement of banks, and tax imports/exports.

Today, there are five central banks which have a critical role on the world’s
finances and the global economy. Those banks include:

 The United States Federal Reserve

 European Central Bank

 Bank of Japan

 Bank of China

 Bank of England

Out of the central banks listed above, the European Central Bank is the only
one which governs the currency of multiple countries. The European Central
Bank is responsible for maintaining the stability of the Euro in all Euro Zone
countries.

That isn’t always an easy goal. Europe is a diverse continent with a number
of diverse economies. Today, the Euro is being dragged down by relatively
poor economic countries like Greece and Spain while wealthier countries like
Germany and France spend millions on bailout packages.

What is the future of currency?

The future of currency may lie with digital currencies and
“cryptocurrencies”. Over the past few years, we’ve seen the sudden rise of
anonymous cryptocurrencies like BitCoins and similar competitors.
 These currencies are totally different from any other currency in existence
today. They have no intrinsic value and exist entirely online in the form of
bits and bytes. They’re also anonymous and difficult to track.

Although cryptocurrencies are currently only accepted in a limited number of

marketplaces, that number is rising every day. As governments struggle to
find ways to tax Bitcoins and similar currencies, consumers continue to buy
these currencies in droves.

What does the future of money hold? It’s difficult to say. Some believe we’ll
have a single global currency one day, while others think that’s an impossible
goal. The expansion of the Euro into more and more countries is an
interesting experiment into how a single currency can govern multiple
countries in a single geographic area, and the rise of BitCoins, LiteCoins, and
DogeCoins could change the future of currency of forever

https://bebusinessed.com/history/the-history-of-money/

The History of Money

 Posted 10.26.96
 NOVA

What is money? By definition, it's something of value. But over the last 10,000 years, the
material form that money has taken has changed considerably—from cattle and cowrie shells
to today's electronic currency. Here, get an overview of the history of money.
Today we value gold Kruggerands and paper Franklins, but cattle and cowrie shells have also served as
currency. EnlargePhoto credit: © Steve Sucsy (coin), Skip O'Donnell (bills), narvikk (cow), Steve Goodwin (shells)/iStock

Editor's Note: The dates below mark the approximate start of use.

IN THE BEGINNING: BARTER

Barter is the exchange of resources or services for mutual advantage, and the practice likely dates
back tens of thousands of years, perhaps even to the dawn of modern humans. Some would even
argue that it's not purely a human activity; plants and animals have been bartering—in symbiotic
relationships—for millions of years. In any case, barter among humans certainly pre-dates the use of
money. Today individuals, organizations, and governments still use, and often prefer, barter as a form
of exchange of goods and services.

9000 - 6000 B.C.: CATTLE

Cattle, which throughout history and across the globe have included not only cows but also sheep,
camels, and other livestock, are the first and oldest form of money. With the advent of agriculture also
came the use of grain and other vegetable or plant products as a standard form of barter in many
cultures.

1200 B.C.: COWRIE SHELLS

The first use of cowries, the shells of a mollusc that was widely available in the shallow waters of the
Pacific and Indian Oceans, was in China. Historically, many societies have used cowries as money,
and even as recently as the middle of this century, cowries have been used in some parts of Africa.
The cowrie is the most widely and longest used currency in history.

1000 B.C.: FIRST METAL MONEY AND COINS

Bronze and Copper cowrie imitations were manufactured by China at the end of the Stone Age and
could be considered some of the earliest forms of metal coins. Metal tool money, such as knife and
spade monies, was also first used in China. These early metal monies developed into primitive
versions of round coins. Chinese coins were made out of base metals, often containing holes so they
could be put together like a chain.

500 B.C.: MODERN COINAGE

Outside of China, the first coins developed out of lumps of silver. They soon took the familar round
form of today, and were stamped with various gods and emperors to mark their authenticity. These
early coins first appeared in Lydia, which is part of present-day Turkey, but the techniques were
quickly copied and further refined by the Greek, Persian, Macedonian, and later the Roman empires.
Unlike Chinese coins which depended on base metals, these new coins were made from precious
metals such as silver, bronze, and gold, which had more inherent value.

118 B.C.: LEATHER MONEY

Leather money was used in China in the form of one-foot-square pieces of white deerskin with colorful
borders. This could be considered the first documented type of banknote.

A.D. 800 - 900: THE NOSE

The phrase "To pay through the nose" comes from Danes in Ireland, who slit the noses of those who
were remiss in paying the Danish poll tax.

806: PAPER CURRENCY

The first known paper banknotes appeared in China. In all, China experienced over 500 years of early
paper money, spanning from the ninth through the fifteenth century. Over this period, paper notes
grew in production to the point that their value rapidly depreciated and inflation soared. Then
beginning in 1455, the use of paper money in China disappeared for several hundred years. This was
still many years before paper currency would reappear in Europe, and three centuries before it was
considered common.

1500: POTLACH
"Potlach" comes from a Chinook Indian custom that existed in many North American Indian cultures. It
is a ceremony where not only were gifts exchanged, but dances, feasts, and other public rituals were
performed. In some instances potlach was a form of initiation into secret tribal societies. Because the
exchange of gifts was so important in establishing a leader's social rank, potlach often spiralled out of
control as the gifts became progressively more lavish and tribes put on larger and grander feasts and
celebrations in an attempt to out-do each other.
1535: WAMPUM
The earliest known use of wampum, which are strings of beads made from clam shells, was by North
American Indians in 1535. Most likely, this monetary medium existed well before this date. The Indian
word "wampum" means white, which was the color of the beads.

1816: THE GOLD STANDARD

Gold was officially made the standard of value in England in 1816. At this time, guidelines were made
to allow for a non-inflationary production of standard banknotes which represented a certain amount
of gold. Banknotes had been used in England and Europe for several hundred years before this time,
but their worth had never been tied directly to gold. In the United States, the Gold Standard Act was
officialy enacted in 1900, which helped lead to the establishment of a central bank.

1930: END OF THE GOLD STANDARD

The massive Depression of the 1930s, felt worldwide, marked the beginning of the end of the gold
standard. In the United States, the gold standard was revised and the price of gold was devalued.
This was the first step in ending the relationship altogether. The British and international gold
standards soon ended as well, and the complexities of international monetary regulation began.

THE PRESENT:
Today, currency continues to change and develop, as evidenced by the new $100 U.S. Ben Franklin
bill.

THE FUTURE: ELECTRONIC MONEY

In our digital age, economic transactions regularly take place electronically, without the exchange of
any physical currency. Digital cash in the form of bits and bytes will most likely continue to be the
currency of the future.

http://www.pbs.org/wgbh/nova/ancient/history-money.html

History of Money
This short summary of money history includes only the points relevant to the issue at hand - creating
a currency based on energy. Will the kilowatt hour be the final step in the path started by the cowrie
and followed by wheat, silver, gold, the British Pound and the American Dollar?
Money has taken many forms. Basically anything which is representative of value and can be traded
for a wide range of goods can be said to be money. From beads on a string (wampum) to sea shells
(cowrie shells) to tokens and coupons and lumps of metal.

Fundamental to all of these gradually evolved or fiat currencies is the belief in the minds of buyers
and sellers that they have value. Governments can dictate the value of a currency to a large extent
but must make sure the integrity of their currency is maintained by avoiding circulating too much of it.
If the currency is based on some content of precious metal like gold or silver, they must maintain that
content to avoid “debasing” the currency. For several millennia the success of national or “fiat”
currencies have depended on their consistency of precious metal content because people have
viewed the value of gold and silver as much more reliable and constant than the “promises” of
governments.
Paper money has zero intrinsic value. The first bank notes were printed on paper nearly 1000 years
ago in China preceding Europe by 500 years. At first they were used for exchanges between
merchants but later the government began to operate the presses. This resulted in the worlds first
case of hyperinflation. As a medieval Chinese historian Ma Twan-lin later remarked, “Paper should
never be money but only employed as a representative sign of value existing in metals or produce.” Ie
commodity based.

“Sound as a pound” came into being as a stock phrase because of the British dedication to
maintaining the integrity of their currency (the pound) by keeping the silver content constant. For
several centuries, the British pound was “the gold standard” for most of the world.

Gold has been a representation of wealth for many thousands of years and is embedded in most
minds as being wealth itself. But it isn’t particularly useful. Golds practical applications are limited and
almost 80% of it is used in ornamentation. If the total amount of gold mined were melted into one
large cube, it would measure 20 metres on each side. It is attractive but its rarity and the effort to
produce it gives it its value.

Gold is a highly stable token of exchange, not a unit of real wealth.

In the middle ages, there was a net outflow of gold from Europe to the Middle East and China to pay
for their silk, spices and manufactured goods. This caused scarcity in Europe and continued high gold
prices. It wasn’t until the Spanish plunder of the New World that there was actually a decline in the
value of gold and silver. So much became available that the metals lost a great deal of their value in
the late 1500's.

In most cases of currency debasement, the percentage of precious metal in the coins was decreased
and therefore their value declined over time. This “inflation” is basically a tax by the governments to
deal with urgent financial shortfalls. The flooding of the gold and silver markets by the Spanish was a
rare case of making the metals themselves more plentiful and therefore less precious.

This demonstrates that precious metals are more faith than reality and so limited in supply that any
currency based on them today would become highly inflated to the point of restricting the expansion
of economic activity.

Precious and rare commodities which have held prominence in peoples minds for millennia have
proven to be excellent currency stabilizers. But although they command wealth, they do not constitute
wealth themselves.

COWRIE SHELL CURRENCY

As fixated as we in the west are on the enduring value of gold and silver, the cowrie shell has been
used as an exchange currency longer, by more people and over a greater geographic area than
precious metals. The cowrie shell is a product of the Indian Ocean (principal source was the Maldive
Islands), comes in various sizes and is attractive to both the eye and the touch. Most importantly it is
unique and impossible to counterfeit convincingly. That didn’t stop the Chinese from manufacturing
their own cowries in metal when the supply of the real shells grew short. This underlines the concept
that the representation of money plus faith equals real money.

The cowrie has been used all over Africa and Asia and has been a staple of trade for so long that its
image forms the Chinese pictograph for money. In central Africa it was still possible to pay ones taxes
in cowries in the early 1900s and to purchase small items at market well into the 1950s.

Like precious metals, the cowries had few practical uses outside of ornamentation but that and their
uniqueness and rarity allowed them to form a practical currency whose use spanned over 4000 years
and covered the most populous areas of the world. Their range was from China westward and even to
North America as the natives accepted them in trade from European settlers.

Most societies in the world today are used to thinking of gold as a representation of wealth. We can
look back upon the cowrie shell as a quaint token used by primitive peoples in a time gone by. But at
one time, in a large portion of the world only a fool would give up cowrie shells for gold. They were
both rare but at different times in history in different regions one had a history of value and the other
did not.

Rare commodities such as precious metals and cowrie shells are little more than tokens of exchange,
not embodiments of real wealth.

COMMODITY BASED CURRENCIES

Egypt Wheat Currency
There are extremely few examples of a practical currency actually having intrinsic value. Nails and
knives have been used and most Chinese coinage was made from base metals whose intrinsic value
constituted most of their face value. But the best example of a commodity based financial system is
the Egyptian use of wheat. For much of their recorded history, the ancient Egyptians used wheat and
credits based on wheat as the blood of their complex banking and financial system. Because it is a
staple food, wheat held high and immediate intrinsic value. There would always be a ready market for
this commodity in any location and for a broad scale of transactions.

The wheat based financial system of the Egyptians is the closest to an energy based system in
recorded history. Today, energy has a number of advantages being more ubiquitous in the economy,
more easily transferable, measurable and with a wider range of scale. But wheat possessed most of
the fundamentals, certainly enough to make a financial system work for hundreds and perhaps
thousands of years. And there are no recorded instances of bank failures or currency inflation in this
period. With fiat money, financial crises are a regular occurrence.

The coin and precious metal currency ambivalent Egyptians had used grain for thousands of years as
a crude currency but the system was elevated into a full banking network under the Ptolemies around
330BC who blended the grain base in with Greek banking. The use of grain was made practical by
the (relatively) dependable harvest in the Nile valley thanks to the annual floods which replenished the
soil. Outside of Asia, this kind of consistency was unknown. Wheat as a currency base was made
practical by the unique and dependable soil and water cycle of the Nile Valley which eliminated
severe inflationary cycles.

This begs the question of whether there were rice based currencies in Asia. Certainly a wide range of
transactions were conducted using rice in feudal Japan and Burma. Japan was clearly closest to
establishing a completely rice based currency and banking system but it does not seem to have
approached the sophistication of the Egyptian wheat model.

The Egyptian wheat financial system was complete with a central reserve bank and many branches
throughout the country. It featured the first use of credit notes and was not surpassed in sophistication
until 2000 years later in 18th century Europe. The system could not have reached that level if it had
been prone to inflation or currency crises. It was its reliability that allowed such a high degree of
development of such a relatively cumbersome currency.

Energy is the most reliable and consistent base available and it’s scalability and ease of transport
make it superior to any other commodity as a currency base. It is produced and consumed in lockstep
with economic activity and thus will give a true reflection of the wealth creation process. The value of
energy does not change and it cannot be debased. This is not to say fraud will not occur in an energy
based system but fraud will be easier to identify in system using scientifically defined units.

FIAT BASED

The first practical “coin” outside of China where and weight and purity of the new currency was
accepted without question was stamped in Cappadocia around 2200BC. Since then many currencies
have come and gone. Among the most stable and long lived with widespread acceptance have been
the Roman solidus , the Italian florin and the British pound sterling (with 22.5 troy grains of silver)
which became the most stable currency and the staple of international finance for several hundred
years.
Printed money - paper notes - freed currency and those making it from any link to inherent value in
the coinage itself. This made it possible to devalue the currency in far more subtle ways so
debasement became both easier and less prone to market oversight and public outcry. The results
however were more extreme in terms of more regular and absolute failure. The printing press
removed several large factors of discipline which had previously moderated the actions of desperate
or irresponsible governments.

In the millennia since the implementation of printed money, it has served as a method of exchange,
not as a representation of total output of an economy. Until the last century, a large percentage of the
real economy was non-monetized, that is, the labour and much of the material that went into real
output was not paid for directly. Little of any subsistence economy or womans’ labour was paid for in
cash. Trade did not constitute a dominant part of total productive activity.

Over the past 50 years in industrialized countries however, most forms of labour have moved into the
realm of the commercial economy so the flow of money is indeed widely viewed as being a full
representation of the human portion of the real wealth creation process.

After the second world war, the “almighty” American dollar supplanted the “unshakable” British pound
which had been the bedrock of international finance and trade for 200 years and the most stable
currency in the world for almost 1200 years. The greenback has been the most dominant currency in
world history but it will also have had the shortest run of only 60 years for the usual reason of
debasement by an overly creative and loose financial system underwritten by a structural trade deficit
that has no end in sight.

Should the dollar be replaced by another fiat currency of any description, the cycle of economic crises
will continue. But the perfect currency is out there waiting to write the final chapter in the history of
money.

SUMMARY

Barter trade was a real goods exchange system with perfect transparency and no residual effects and
no distortions.

Commodity based exchanges broadened the trade possibilities with no residual effects or distortions.
It was still real goods exchange on both sides of the transaction. The transaction was totally
completed at the point of and time of exchange.

Coinage broke the system of real goods exchange on both sides of transactions and made distortions
and residual effects possible. As long as the coins had a consistent level of precious metals, the
distortions were slow, moderate and more easily absorbed.

Once the coinage could simply be printed, there were no restraints on abuse and no link to real
wealth. Crisis are inevitable and have been frequent. Particularly as the majority of the human wealth
creation process becomes monetized.

It is important to remember that printed money represents a claim on the real goods in a society but
does not at all guarantee that real goods have been produced to meet the full claims of the currency
printed.

Energy currency restores a direct link to real goods on both sides of the transaction and minimizes
abuse as well as eliminating distortions like currency debasement inflation.

So with the move to energy based currency we will have come full circle from fully transparent real
good transactions to faith based transactions and back again. Precious metal based coinage and
printed currency accelerated immensely the pace of commercial development. But fiat currency based
monetary systems have proven highly opaque and unstable with large cumulative delayed distortions
and crisis.
Energy currency takes us back to fully transparent, stable, real goods exchanges with unlimited scale
and flexibility. The ultimate form of barter with unlimited scale and complete flexibility.

http://www.theperfectcurrency.org/main-history-of-money/history-of-money