The history of money: How currency evolved from pelts to paper (2024)

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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?
  • When was money invented?
  • History of bartering
  • First metal money — coins
  • First paper money
  • The introduction of banks
  • The gold standard
  • Modern-day money
  • The impact of money throughout history
  • What’s next: How can I manage my money?

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.

The history of money: How currency evolved from pelts to paper (1)Image: the-history-of-money

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.

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.

The history of money: How currency evolved from pelts to paper (2)Image: first-metal-money

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.

The history of money: How currency evolved from pelts to paper (3)Image: 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.

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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.

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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.


The history of money: How currency evolved from pelts to paper (2024)


How did money evolve throughout history? ›

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.

What are the 5 stages of evolution of money? ›

There are more than five stages of money's evolution. Still, five notable stages include: commodity money (i.e., grains, livestock), metallic money (i.e., coins), paper money, credit and plastic forms of currency, and digital money.

How did money become paper? ›

History. Paper currency first developed in Tang dynasty China during the 7th century, where it was called "'flying money'", although true paper money did not appear until the 11th century, during the Song dynasty. The use of paper currency later spread throughout the Mongol Empire or Yuan dynasty China.

What is the conclusion of evolution of money? ›

The Evolution of Money Meaning

It also acts as a store of value and a unit of measure. The evolution of money is a series of development in the form of the acceptable medium of exchange throughout history. But why is money so important? Money is important because it allows us to obtain the things we need and want.

Who invented paper money? ›

Paper bills were first used by the Chinese, who started carrying folding money during the Tang Dynasty (A.D. 618-907) — mostly in the form of privately issued bills of credit or exchange notes — and used it for more than 500 years before the practice began to catch on in Europe in the 17th century.

What was the first paper money in the world? ›

The Chinese issued the world's first paper money

The note, called a kua, is the equivalent of 100 coins and dates from the Ming Dynasty, A.D. 1368–99.

When was paper money invented? ›

Paper money can be traced back to the promissory notes of ancient China, Carthage, and the Roman Empire, over 2000 years ago—but the banknote as we know it today emerged in the 7th century and is still evolving.

What will be the future of money? ›

Q: What is the future of money? The future of money is expected to be heavily influenced by technology. Predictions include the rise of cashless societies, the growth of cryptocurrencies, the continued adoption of digital currencies, and the potential offering of a Central Bank Digital Currency (CBDC) by governments.

Where does money come from? ›

In most modern economies, money is created by both central banks and commercial banks. Money issued by central banks is termed reserve deposits and is only available for use by central bank account holders, which are generally large commercial banks and foreign central banks.

Why did money change to paper? ›

In all cases, they were a financial expedient adopted to cover a lack of funds by promising to “pay later.” The Continental Congress, the union of former colonies in rebellion against the British monarchy, introduced the first American national paper money in 1775, trying to meet military expenditures.

What did the first paper money look like? ›

Each note was about the size of a sheet of A4 paper (US letter), and consisted of a copper-plate-printed pastoral scene with pictures of coins and a warning to counterfeiters underneath. Printed notes were embellished with a hand-written denomination and red ink stamps of authenticity.

What did people use before paper money? ›

Before money was invented, goods and services were exchanged through bartering or using commodities like salt, cattle, or grains. People used metal objects as money to exchange goods and services as early as 5000 B.C. Paper money in the United States dates back to 1690 and represented bills of credit or IOUs.

Who invented money for kids? ›

In the 600s bce the kingdom of Lydia in what is now Turkey began to make coins. It was probably the first government to do so. These coins were a combination of silver and gold, called electrum. Many ancient peoples, including the Greeks and the Romans, also used coins.

What was the first currency? ›

The Mesopotamian civilization developed a large-scale economy based on commodity money. The shekel was the unit of weight and currency, first recorded c. 2150 BC, which was nominally equivalent to a specific weight of barley that was the preexisting and parallel form of currency.

What is money made of? ›

U.S. currency paper is composed of 25% linen and 75% cotton, with red and blue fibers distributed randomly throughout to make imitation more difficult.

What money did humans evolve from? ›

But the roots of those modern modes of payment may lie in the Sumerians' tokens. Such early accounting tools ultimately evolved into a system of finance and money itself —a symbolic representation of value, which can be transferred from one person to another as a payment for goods or services.

How was money created and why? ›

These issues with commodities led people to create coins out of precious metals to use as money. No one knows for sure who first invented such money, but historians believe metal objects were first used as money as early as 5,000 B.C. Around 700 B.C., the Lydians became the first Western culture to make coins.

How was money used when it was invented? ›

The Origins of Money

With its invention, a physical object like a coin or a slip of paper was exchanged for goods and services. Today, many economists insist that currency arose to replace the barter system, in which people traded goods and services directly without money being involved.

How did money emerge out of a barter economy? ›

Money emerged out of the barter economy whereby Goldsmiths kept gold for people and gave them receipts; instead, those receipts became the "money." The main reason for emerging of money was the challenges of the barter trade.


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