Throughout history, financial innovations have played a crucial role in shaping societies, battles and empires. New inventions – from coins to paper money to banks – have triggered global shifts in power. Here are 10 amazing facts from the history of money…
1. We never really started with bartering
It’s a cliché that before coins and banknotes, people bartered, trading (say) a fishing net for shoes. But this idea is a fallacy. There’s no way for bilateral deals to meet true needs. From the very start, humans relied on brokers who dealt in “proto-money” to grease the wheel of transactions. This proto-money varied by culture, from bolts of silk to ingots of gold to heads of cattle. But currency brokers are a foundation of civilization.
2. China invented coins
In China’s Yellow River valley in 5 BCE, we see the widespread emergence of coins in the form of bronze castings. We see the same in Lydia, a kingdom in modern-day Turkey, during this period. But Chinese coinage probably goes back centuries before that.
3. Money and banking aren’t as modern as you think
Finance emerged with writing. The earliest attempts at writing are tallies. The ancient Mesopotamians’ clay cuneiform tablets were printed to keep track of commodities and set terms of transactions. These could be quite sophisticated, resembling modern-day futures contracts. The Code of Hammurabi (which was written in 1754 BCE and set the tone for law in the ancient world, until the Greeks) dealt mainly with contracts and transactions.
4. Greece connected coins to markets
The ancient Greeks were the first to promote widespread adoption of coins in private retail markets, rather than leaving it up to governments and their cronies to control how coins were used. This turbocharged Greek civilization, put economic power in the hands of ordinary people, and allowed cities like Athens to finance their arts and culture.
5. The Islamic World developed the first version of modern banking
Muslim traders formed commercial houses that spanned the entire Islamic world, from Central Asia to Spain. These merchants, keen to exploit this giant market, invented tools to sidestep the prohibitions of their faith on charging interest. Bills of exchange, checks, and bookkeeping using Indian numerals are all things that European bankers would copy and revise in Renaissance Italy.
6. China invented paper money
The Tang Dynasty of the seventh to tenth centuries was a golden age for China, which by now was the world’s largest economy and most sophisticated culture, with inventions including gunpowder, the compass, and printing. But its dependence on strings of low-value coins was an impediment to commerce. Guilds in Sichuan Province experimented with “flying checks”, with contracts printed on the bark of mulberry trees.
7. Spain’s New World plundering crashed the world economy
Spain’s conquests of the Aztecs and Incas led to an orgy of stealing and mining gold and silver. So much was shipped to Europe and China that it led to a century of inflation. There was simply more money in circulation than the economies could absorb. This bounty initially made Spain the world’s richest and most powerful country in the world, but by the seventeenth century, Madrid’s rulers had become serial defaulters.
8. The Dutch invented capitalism
The Netherlands was a checkerboard of Catholics and Protestants, so to survive the burghers practiced a new idea: toleration. This attracted all kinds of talented people fleeing persecution elsewhere, and fuelled a culture that found wealth and power in credit.
Amsterdam saw the first central bank, the first stock market, and the first market mania (over tulip bulbs). The Dutch financed their own wars of rebellion against Spain, and then a world-spanning commercial empire.
9. Sir Isaac Newton helped establish Britain’s financial hegemony
Newton was named Master of the Royal Mint in 1696, a side job he enjoyed throughout his career. While there he reformed the mess of debased British coinage, establishing a firm gold standard for the pound.
This decade also saw the chartering of the Bank of England, which set a new model for managing the currency with a public-private partnership. The combination of Newton’s gold standard and the Bank of England’s privilege to issue currency led to modern money markets that underpinned British power.
10. Americans are the masters of fiat money
Although China and Europe pioneered banknotes, these began to be used widely in the general population in early America. The colonies lacked precious metals so they printed copiously to finance government, the Revolution, and the Civil War.
The global arrangements after World War Two pegged the US dollar to gold, but in 1971 Richard Nixon abandoned this constraint. Thus began today’s period of pure fiat currencies (meaning a currency is accepted as money because a government says that it’s legal tender), and the risk that we lose mastery over money if we rely too heavily on the printing press.
‘Cowries to Crypto: The History of Money, Currency and Wealth‘ by Jame DiBiasio and illustrated by Harry Harrison is published by OANDA, a global leader in online multi-asset trading services.