This is a history of money from the ancient kingdom of Lydia and its electrum coinage to bitcoin and blockchain. The history of money is rich and varied. As we will learn, the first known minted coins in the world were the Lydian electrum and money has been around in one form or another for far longer.
Arguably the world's oldest known form of currency. For Siberian tribes it was reindeer. In Borneo it was buffalo. For the Hittites it was sheep.
From China to Africa cowrie shells have been used as a currency but had the clear limitation of not being universally valued or desired.
Primitive metal started to replace cowrie shells as they were more physically robust.
Silver and gold
Archaeologists have identified Lydia, an ancient city in what is now Turkey, as the first location where stamped silver and gold coins were in use. The Lydians made the first coins between 640-630 BC, of electrum, a naturally occurring mixture of gold and silver, writes Jack Weatherford in his excellent book The History of Money.
They made the electrum into oval nuggets and each was stamped with the emblem of a lion's head. The stamping process began the transition into a flat, circular coin. The standardisation of currency in terms of weight and value made it much harder to cheat in a commercial transaction. It also encouraged growth in commerce, Weatherford explains.
The legendary Greek King Croesus (he of rich as Croesus fame) reigned Lydia from 560-546BC. He created new coins of pure gold and silver rather than electrum. This helped pave the way to specialist retail markets in goods and services, including very personal services.
Gold acts not only as a unit of account and a medium of exchange, two of the classic functions of money, but also as a store of value, the third such function. This is one of the principal reasons why it retains a firm foothold in international monetary systems.
In the history of money, gold has longevity far beyond other ephemeral materials.
Slaves could be used as a means of calculating the value of other goods and services. As with any product or commodity, some slaves were more valuable than others. There are known records of transactions in which human beings were used as collateral.
Cloth and grain
Cloth and grain played key roles in the history of money in China, Korea and Japan. Silk functioned especially well as a measure of value or unit of account, a medium of exchange and a store of value.
During the T'ang dynasty the Chinese monetary system was based on a dual coin-textiles standard. The price of rice and debt contracts were calculated in numbers of rolls of heavy silk cloth (see Money: A History, published by the British Museum Press).
The rise of China's modern currency, the renminbi, has been marked in recent years. But further progress will surely be hampered by its lack of full convertibility into other currencies and continuing concerns about official manipulation of the currency.
Leather money circulated in China for a time when coins were in short supply. The one-foot square pieces of white deer hide with colourful borders are thought to be in effect the world's earliest bank notes.
Paper money is thought to have begun circulating in China in the era of the T'ang dynasty (618-907 AD). Cash had been around since hundreds of years before the common era. Several states in what would become China issued shaped money in the form of knives or spades.
Other shapes included imitation cowrie shells and round discs with a hole in the centre. China began issuing silver dollar notes in 1899. Paper money has many uses but it is a notorious driver of inflation as hit the German mark in the Weimar Republic 1921-24.
The most common spice to be used as a currency, across China, North Africa and the Mediterranean. The word 'salary' derives from the Latin word for salt. Roman soldiers are widely thought to have been paid in salt. Hence the expression that someone is worth his or her salt.
Stone is used for money on the island of Yap in Micronesia. Rai stones are circular, come in different sizes up to 12 feet in diameter. They have a hole in the middle to enable them to be transported, though their sheer weight made that difficult.
Credit and debit transactions were recorded on the larger stones. The wealthiest family on Yap was the family with the biggest stone. Even though it had long vanished into the sea, the family was still regarded as the wealthiest.
This illustrates almost perfectly the role of credit, or confidence, even blind faith, in the functioning of an economy, ancient or modern.
Kissi pennies made of iron and varying in length from nine to 15 inches were used as a general purpose currency in west Africa in the late 19th century according to the liberiapastandpresent.org website.
Kissi pennies were tied in bundles of 20 and used for a variety of purposes. At the beginning of the 20th century a cow would cost 100 bundles, a virgin bride 200 bundles and a slave 300 bundles. Today they are used only for cultural and ritual purposes.
Widespread use of animal pelts as money owes much to the combination of their inherent value as protection against cold, and portability and durability. Their value was greater in cold weather areas than in warm weather areas.
Bones have been used as a type of currency but are limited by the difficulties of standardisation and low levels of acceptance.
Whale teeth were highly prized in Fiji and its vicinity for internal trading, but as was the case with cowrie shells they were less highly valued by outsiders.
The Bank Charter Act of 1844 gave the Bank of England a virtual monopoly on the issuance of notes in the UK. Certain banks were allowed to continue issuing their own notes but each pound issued has to be backed by a pound deposited with the Bank of England.
These notes are not, technically, legal tender. A seller cannot be forced to accept them as payment.
The Bank of England became the centre of the global financial system in the 19th century. Jack Weatherford observes that “from 1844 until 1913, the English pound sterling reigned as the most steadfast and important currency in the world”. Its convertibility into gold finally ended in 1931.
Emergency money carved out of small pieces of wood was devised in Germany when the mark became worthless.
The United States issued its first coins in 1787. The modern US dollar did not come into being, however, until the creation of the Federal Reserve System in 1913. Notes were redeemable in gold until 1933.
The word dollar has played an important role in the history of money. Dollar ultimately has its origins in the German word for valley, Thal, named after coins from Jachymo. This Bohemian village sat on a rich seam of silver which became coins known as thalers. The form dollar came into English after King James VI of Scotland issued a 30-shilling piece.
This was known as the sword dollar, recounts the British Museum history. Scots used the word dollar to distinguish their currency from that of the English. Its use persisted into the 1970s. A crown was commonly referred to as a dollar and half a crown as half a dollar.
This harked back to the days when a pound bought four dollars. The term began to disappear from use in the wake of the decimalisation of the British currency on 15 February 1971. Pounds, shillings and pence (known as LSD after the Latin words for each) overnight became pounds and pence.
British history of money: pounds, shillings and pence, pre-decimalisation
- 20 shillings in £1 - a shilling was called a ’bob'
- 12 pennies in 1 shilling
- 240 pennies in £1
- farthing (a fourth-thing) was 1/4 of a penny
- halfpenny (pronounced hay-p'ny) was 1/2 of a penny
- half-groat was two pennies
- threepenny bit (pronounced thrup-p’ny)
- groat was four pennies
- sixpence - often called a 'tanner'
- two shilling piece, called a florin
- half-crown (2/6d - two shillings and sixpence)
- crown (5/- - five shillings)
- ten shillings (a half-sovereign)
- half-guinea (10/6d)
- £1 coin was called a Sovereign and was made of gold. A paper pound was called a 'quid'.
- guinea (£1/1/-)
- £5 coin
The dollar is sometimes adopted as the official currency of countries outside the US, particularly when the value of a state’s own currencies has been destroyed by hyperinflation. The dollar remains an unofficial currency in many economies around the world.
Euro a landmark in the history of money
The creation of the euro on 1 January 1999 was another major landmark in the history of money. The participating European Union countries abandoned their historic currencies. The move was watched sceptically in Germany, which long worshipped the modern deutschemark.
These countries, now known collectively as the eurozone, initially knew the euro only in electronic form. The conversion of notes and coin did not take place until 1 January 2002.
The eurozone now includes 19 of the 28 EU members state countries but the euro is the official currency of several other countries outside the EU too. It is widely accepted as an unofficial currency elsewhere. It is the second only to the US dollar as the world’s runner up biggest currency reserve.
Cigarettes and chocolate
Anyone who has read histories of the second world war will have an instinctive understanding of how they became a currency substitute. Prisoners of war used them as intra-prison currency, alongside prison scrip money (lagergeld) and to bribe guards.
In cash-strapped Romania under the dictator Ceausescu cigarettes could be used to buy just about anything when paper money became worthless.
The Aztecs used chocolate, or rather cacao beans, as currency to buy food and luxury goods.
The first and largest of the so-called blockchain-based cryptocurrencies. Bitcoin et al are incomprehensible and unexplainable to even a moderately financial sophisticate. It illustrates the value of one of the first principles of investment. If you do not understand something, do not buy it.
Recommended further reading
- The History of Money, by Jack Weatherford, published by Three Rivers Press, serious but very readable, accessible to and enjoyable for the lay person
- Money The Unauthorised Biography by Felix Martin, published by Vintage Books. This is quite simply one of the best books yet written about this subject
- The Ascent of Money by Niall Ferguson, published by Penguin History. Also enjoyable but a touch more scholarly in its writing as befits an author who is the Laurence A Tisch professor of history at Harvard University
- HISTORY OF MONEY by Mike Thornton, self-published and sometimes sloppily edited, but occasionally enlightening and entertaining. Very much at the lower end of the academic scale.