History of Money
Understanding how money evolved helps explain market structure, regulation, and why programmable assets matter today.
Before coins: barter and informal credit
- Early exchange relied on direct barter — swapping grain for tools — which required a double coincidence of wants.
- Communities tracked obligations via clay tablets or tally sticks, effectively creating early IOUs.
- Barter struggled with divisibility, portability, and scalability, motivating the search for universal media of exchange.
Commodity money and coinage
- 7th century BCE Lydia introduced stamped electrum coins, standardising weight and purity for trade.
- Greek and Roman empires expanded coin usage, enforcing acceptance via taxation and legal tender laws.
- China experimented with bronze knife-coins and cowry shells before adopting round coins with square holes.
- Commodity money tied currency supply to mining output, limiting flexibility during military campaigns or disasters.
Paper money and representative notes
- Song Dynasty China (11th century) issued jiaozi notes redeemable for coin, solving transport risk for merchants.
- European merchants popularised bills of exchange and promissory notes, enabling long-distance trade financing.
- In the 19th century, many nations linked paper notes to gold reserves, creating confidence but constraining monetary policy.
Fiat currency and central banking
- Central banks emerged to stabilise banking crises and manage note issuance (e.g., Bank of England, Sveriges Riksbank).
- The gold standard unravelled through wars and recessions; by 1971 the US closed the gold window, cementing fiat money.
- Fiat currency allows governments to adjust supply via interest rates, reserve requirements, and open market operations.
- Inflation risk rose as supply became policy-driven; credible institutions and inflation targeting emerged as safeguards.
Electronic payments and digital assets
- 20th century saw electronic bank transfers, credit cards, and global payment networks replacing physical cash in commerce.
- 2009 Bitcoin introduced decentralised, scarce, programmable money; thousands of crypto assets and smart-contract platforms followed.
- Central banks now test CBDCs, blending fiat guarantees with programmable settlement layers.
- DeFi protocols enable permissionless lending, trading, and derivatives, expanding the concept of money into composable code.
Key takeaways for strategy work
- Every monetary shift reshaped market plumbing and regulation; understanding history clarifies today's venue rules.
- Crypto strategies exist alongside fiat systems. Fees, liquidity, and hedging options still depend on traditional banking links.
- Expect hybrids: tokenised deposits, stablecoins, and AI-driven treasuries will coexist, demanding flexible strategy selection.