Coins and Currency

Coins and currency are, in simple terms, money and this is what drives a lot of activities. People work for money; they buy things with money and, in many cases, greed is driven by money. There are a lot of things about currency that people do not know; how did currency start and why did each country develop its own type of currency?

In ancient times, there was no currency available to people so a system of bartering was used. This is a system where commodities are traded for each other. Typically, salt, tea, and seeds were the most common items that were traded but this system was clumsy and difficult to use. Bags of salt, of example, are bulky and difficult to trade. Other commodities are perishable making bartering a difficult transaction. Because of the difficulties associated with bartering, a currency system developed.

Around 5000 B.C., the first metal objects were traded in lieu of commodities. These objects were made out of common but semi precious metals that were worth a specific value. By 700 B.C., the Lydians were making their own coins and soon other groups around the world were following suit.

Coins were generally made out of silver and gold and were assigned a value based on how much of the mineral is in it. This is how the value of the coin was determined and, since it was so uncomplicated it rapidly replaced bartering.

It is not known where paper money first originated, but many believe that is was in China at about 950 A.D. Since paper contains no precious minerals, this was the first time that the money itself was not valuable. What makes currency valuable is the public’s attitude that it is worth something and their willingness to accept it. If people don’t think it is worth anything, they will not accept it and money will be worthless; coins and currency have become representative money.

Representative money, by itself, is not worth anything. What makes this money valuable is both the promise of the government and the banks to honor it. This gives the money legitimacy. However, this guarantee was based on the promise to pay equal value for the money in gold or silver.

As the currency systems have evolved over time, it is now called a fiat system. This means that governments have passed laws making it illegal for anyone to refuse to accept the paper currency. For this reason, the term “legal tender” has been added to U.S. currency.

For years checks have been a substitute for paper currency and now that system appears to be diminishing. Debit card and electronic funds transfers are becoming more popular and are displacing paper currency in a many financial transactions. Furthermore, this may be a glimpse of what the currency system look like in the future.

Each country over time has developed a currency system that is their own and has no reason to accept money from another country. They have not backed it so they won’t honor it. There are as many names for the dollar as there are countries; for example, in England it’s the pound, Germany has the deutsche mark, and Japan has the yen. In the United States, the first paper currency was printed in 1862, which was strange timing since the country was in the middle of the civil war and the confederacy was printing its own money. There were only three denominations issued, 5, 10, and 20 dollar bills.

As the world becomes more tied together economically and financially, the currency system is, without doubt, destined to change.