did money come to be? Money is
an integral part of our everyday lives. When we think of money, then usually we
don’t think of it in the aspect of how money came to be or what were the
predecessors of the notes and coins we use today. Often times looking back in
time is healthy and gives us the possibility to set clearer goals for the
A long time ago, people lived off of what was available for them in the woods and what they could get from water. As better tools and fishing gear were developed, people started to develop a surplus from what they got, in turn, they wanted to exchange this surplus of goods with something else that they needed. But how is it possible to do something like that, if there is no money in the contemporary sense? People started to use the mineral, herbal and animal goods that best stood the test of time as something to measure value with or simply found an immediate use for the goods. Jewellery, furs, weapons, cattle and other such goods all functioned as money. Aztecs used cocoa beans as money, in China and North-Africa it was salt that functioned as money, in Nigeria it was footcuffs etc. Even people have been used as money.
Soon gold and silver took the place of the described commodity money. In order to be not forced to weigh the coins, every coin was coined with an exact predescribed weight. The right to mint coins was usually left to the ruler or the public authority. As trading developed, operating with coins became tedious. Due to this, banks and banking houses started to issue cheques and bonds, after which cash as such emerged (in China 11 centuries BC and in Europe on 17th century AD). Nowadays metal coins are only used as change.
In order to stabilise the circulation of money, the gold standard was established during the 19th century. This means that the national currency was bound to the gold reserves and the price of gold. The money had an official concentration of gold and national banks could more or less freely exchange money into gold and vice versa. This system worked with the presumption and belief that there is no inflation and there never will be. If prices rise, then money loses value. This is known as inflation and when prices drop and money gains value, then deflation is happening. Most of the time, inflation is happening but during short period of time deflation may also happen.
After the inflation was gotten under control, in 1922-1928, efforts were made to restore the gold standard, but in 1929-1933, after the great economic crisis, most countries abandoned this idea. After this the value of money started to ’’float’’ and depend on the supply and demand of the money exchange markets.
After World War II the decision was made to create a stable system of international exchange rates. During a monetary conference in 1944, Bretton Woods (USA), the Bretton Woods system was agreed upon. This system stood upon two cornerstones: gold and the US dollar. Due to this, the US dollar became the global reserve currency. The United States of America agreed to exchange dollars to gold if such a request was made. To support this system, the International Monetary Fund and the World Bank were created.
During the 1960ies this system started to fall apart, as the market value of gold exceeded the official rate and world trade grew rapidly. In 1971, the USA decided to allow ’’floating’’ rates for the US dollar. Despite this, attempts to stabilise the global money exchange markets continued. In 1979, the countries of the European Economic Community started to create the unified European currency system. Based on the exchange rates of all the member-states, an estimated unit of value ECU (European Currency Unit) was created. The rates of the member-states’ currencies were fixed, as were fixed the allowed fluctuations in these rates. This system was called ’’snake in the tunnel’’. The avoidance of bigger fluctuations and the stabilisation of the exchange rates became the task of the member-states’ national banks. Already in the Treaty of Maastricht in 1991, the adoption of a single Eurocurrency was foreseen. This became to be in 2002, when most of the member-states of the European Union adopted the Euro.