The Rise of Currency

Currency has existed for thousands of years. In fact it has probably been around almost as long as humans. After various studies it seems the first currency arose circa 2500 to 3000 BC.

The very notion behind currency no matter how primitive is that we need it to acquire goods. Currency then is a means to acquire those goods. The term money is often synonymous with that of currency but they are not entirely the same thing. Money, although still a currency was more aligned to the intrinsic value of the precious metals which the money was made from such as gold and silver.

One of the earliest systems of currency is barter. Barter involves exchanging goods for another good of equivalent equal value. This might involve one person exchanging a sheep for a pig for example. The major problem with barter is that in order for it to serve its purpose, there had to be a ‘coincidence of wants’. What this means is that in order for a trade to take place, both traders have to desire what each other has available for exchange which wasn’t always the case. There are also seasonal issues whereby say a wheat farmer may require apples from a fruit farmer. This inherently will lead to a delay in the exchange as the produce is harvested at different times of the year.

There are some historians who believe that early societies were based on the gift system. This is a process whereby goods and service are given seemingly altruistically without an immediate need for repayment. It is said that this system facilitated the greater good in a sense that helping one helps all!

In order to overcome this problem, commodity money was introduced as a store of measurement. It was used as an intermediary currency to hold the transaction until the original goods were available to barter. It soon became a necessity as economic rules and polices were created. It was in Mesopotamia that we saw the first real operation of an economy based on commodity money. The shekel was used as the currency and first came into existence in 3000 BC. It was used to define the specific weight of barley and in turn set out equivalent values of gold and silver.

Commodity money soon began to emerge in many societies around the world such as China, Africa and Japan. The Chinese and Africans used cowry shells and the Japanese feudal system utilising rice grains.

It was the Babylonians who developed the first real system of economics as we know it today. The basic principles of business and debt have not inherently changed that much. In fact banking was actually invented before coins back in ancient Egypt. It was military conquests from the likes of Alexander the Great where coins received their first widespread use as a form of money. They were seen as a convenient form of payment due to their size and weight. In fact wars in general have escalated the use of coins from ancient Greek and Persian wars right up to the Second World War. The concept of the national debt as we know it today was borne out the circulation of coins.

Although we no longer use sheep and goats and slabs of salt as forms of currency these days, it’s clear to see that the basic principles that were prevalent in ancient times are still visible today.

This article was produced on behalf of the team at IronFX, a Forex Broker.