author:Darren Kleineauthor:
Compile: Cobo Wallet
Currency, which keeps human society running. It has an immeasurable impact on peoples daily life, yet we know very little about its working mechanism and history.
Eventually, we can find that society is gradually returning to the track of real money.
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Before Money: Barter
As early as 6000 BC, in the era of the Phoenicians, there was already a systematic barter, and they exchanged goods between different cities in the Mediterranean Sea. Bartering also existed for centuries in the Far East, Middle East, and Europe, with items exchanged for spices, silks, salt, furs, perfumes, and other popular items.
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From barter to currency
British North America is an interesting example of the transition from barter to a money economy in modern times. The fur trade reached its heyday in the 17th century when beaver hides, a high-quality fur made from beaver fur, became the standard unit of measure for many items traded with each other. In this way, beaver skins became a currency. In 1795, each beaver skin could buy 8 knives or a water jug. You can buy a gun for 10 beaver skins.
source: www.furtradestories.ca
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It was a successful medium of exchange, facilitating trade, and functioning as a unit of value, but it was indivisible, and, only up to a certain standard, beaver skin was irreplaceable.
From time to time, managers of fur trading companies have been caught substituting low-quality hides for high-quality furs. As such, it is not irreplaceable, and far less portable and durable than metal coins.
Another big problem with beaver pelts as currency? At the beginning of the 19th century, beavers were essentially wiped out, with only a small number of young beavers remaining in trade.
From our perspective, the obvious solution is to use coins to make transactions more efficient, such as the British shilling. The prerequisite is that both parties to the transaction can reach a consensus on the value of the coin.
The switch from barter to currency has happened time and time again in economic history. In some cases, however, barter persisted.
What is currency? How are currencies different?
So, what exactly is money? If beaver skins can be used as currency, isnt it also a form of money?
Not really. Money differs from currency in several subtle but important ways.
Money is more abstract than currency. Currency is an instrument of exchange, and money has intrinsic value without any institution giving it value.
Also, the term hard money always brings to mind items like gold and silver, which have intrinsic value because they are hard to come by. Currency, on the other hand, is usually a piece of paper or other similar promissory notes used to represent value and is relatively simple to make.
If money wants to be real, it must satisfy several properties:
Money must be a medium of exchange. In other words, it must be available for exchange between different goods or services;
Currency must be a unit of measurement that can be exchanged for goods or services at a set price;
Currency must be portable, it can be transferred from one user to another in order to complete a transaction;
Currency must be durable, without wear and tear over a long period of time, and its value will not dissipate;
Currencies must be fungible, with each unit identical to every other. A dollar has the same value as another dollar.
store of value
store of value
It is important to note that real money, unlike currency, is a store of value in the long run. Currencies have no intrinsic value, but can be used as a vehicle to transfer value. Governments can keep printing money.
In contrast, paper money changes frequently and loses value over time, while gold lasts forever. Unlike many currencies, gold can be melted down and fashioned into jewelry, but it wont rot or break, and will continue to exist in various forms.
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Efforts that people have made to create money throughout history
In order to find out how currency was born in history, we need to go back to ancient times.
Amber gold was widely used as currency from the 7th century BC until around 350 BC. The alloy was more durable than pure gold, and alchemy, which hadnt yet been standardized at the time, was harder than it would be in later centuries. The most critical problem with amber gold is that the variation in purity makes it difficult to become a fungible currency.
source: www.vcoins.com
Over time, the amount of gold in gold amber coins issued gradually decreased due to the higher intrinsic value of gold and the correspondingly higher cost of minting the coin if the ratio of gold to other metals remained the same.
source: en.wikipedia.org
At various times in some other civilizations, different forms of currency have emerged to meet economic needs. In Africa, China and India, zimbeh was once used as a currency in transactions, because of its small size, light weight, fine texture and pattern, it was difficult to counterfeit. In places where these natural supplies were scarce at the time, Zimber played a large role in the transaction.
source: www.transmaldivian.com
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For the Aztecs, cocoa beans were a good form of currency for hundreds of years. Just like todays banknotes, not everyone can produce cocoa beans. In order to ensure its value, the production of cocoa beans is strictly controlled. The region where this currency became popular is what is now Latin America.
In feudal Japan in the 17th century, rice served as currency. People can use it to exchange goods, pay taxes, or receive a salary. Rice continued to serve as currency in Japan for several years because of its light weight and ease of transportation. In fact, in the early stages of the transition from rice to metal currency, it was once met with disgust and suspicion. All of these currencies operate on a consensus and supply and demand basis.
The same principle of supply and demand in a free market holds true here, if there is too much supply of shells, they will be worth less than if they are hard to come by. Of course, these currencies have their limitations and cannot fully function as money.
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return of money
These coins, originally composed of amber gold but gradually refined to meet all the qualities of real money, survived for many centuries. From the form of ingots and eventually into coins, it has been a trusted and stable form of money for nearly 800 years.
source: en.wikipedia.org
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Gold has held its intrinsic value well due to its scarcity, so peoples salaries 2000 years ago were almost the same as they are today in terms of gold:
During the time of Augustus the Great (27 BC to 14 AD), the salary of a Roman centurion was 15,000 sestertii, considering that a gold Augustus was equivalent to 1,000 sestertii, each August containing 8 grams of gold, his salary is about 38.58 ounces of gold. At current prices, about $54,000 a year.
It also shows that gold is a good store of value and acts as a good inflation hedge. But in comparison, banknotes are more convenient and easy to use, which can be seen from Chinas long currency history.
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Flying Money
Paper money first appeared in China during the Tang Dynasty. This kind of currency is also called flying money. Unlike metal currency, this kind of money is easily blown away by the wind.
Although paper money is not strictly a legal tender, it was originally intended to be exchanged for metal currency, but it has become popular among merchants because of its convenience and portability.
source: en.wikipedia.org
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The banknotes that were printed forcibly by the first country first appeared in the Song Dynasty. Only banknotes officially issued by the imperial court can be regarded as currency, and they are backed by corresponding metals.
inflation kicks in
During the Yuan and Qing dynasties, the economy was victimized by excessive printing of paper money that was not backed by sufficient hard money. Both gold and silver were confiscated by the state in order to maintain monetary control. Slowly, in order to boost the economy, the excessive printing brought about led to extreme inflation, which caused a large depreciation of paper money.
During the Ming and Qing Dynasties, after experiencing the failure of paper money, they gradually returned to hard inflation. The innovation of paper money gradually spread westward to the Middle East and Europe. In 1601, Sweden became the first European country to issue paper money.
From Chinas long currency history, we can also see that metals will eventually return as a real hard currency, because they will not be printed and destroyed. Various economies around the world are also gradually moving closer to hard currency because they have the advantages of free markets and are well protected against inflation due to scarcity.
Fiat currency in modern society
In the 20th century, since paper money around the world needed to be anchored in gold or silver, extreme inflation was avoided.
After learning the lessons of inflation in continental Europe at the end of the 16th century, in order to prevent similar mistakes from happening, the United States turned to another currency standard-every dollar is backed by gold or silver to ensure that the currency has a certain intrinsic value . Since gold is rarer than silver and less prone to supply surges, it has gradually become the standard backing behind U.S. currency, interchangeable with gold of the same value.
During times of war, countries temporarily abandoned the gold standard, and people began hoarding metal currency to protect assets because banks were unable to convert paper money.
After World War II, the Bretton Woods system was established, and the currencies of many countries in the world were anchored to the U.S. dollar, and the U.S. dollar was the gold standard. This means that the global currency is linked to the value of gold, forming a global currency standard.
Of course, claiming that it is backed by gold and actually being backed by gold are two different things. When more and more countries are no longer willing to exchange with the US dollar, but want to exchange their currency into gold, a problem arises: the demand for gold exchange is far greater than the reserve of gold.
nixon shock
During Nixons tenure, the gold standard came to an end. The U.S. government unilaterally closed the channel for converting U.S. dollars into equivalent gold. The move was seen as a successful solution to the currency crisis, and the next day the Dow notched its biggest one-day gain ever.
But since then, we have entered the era of floating fiat notes. This all looks all too familiar, doesnt it? We moved from real money - gold and silver - to overprintable paper money.
Inflation caused by over-printing became a persistent global problem.
Digital Age
source: www.statista.com
In recent years, the digitalization of currency has risen around the world, and we also call it cashless payment: debit cards, credit cards, and mobile payments that have become popular in recent years, such as Apple Pay, Google Pay, and PayPal occupy daily transactions the vast majority of. As of the end of December 2017, there were more than 800 million WeChat Pay card-binding users.
Like banknotes, these electronic forms of payment are not scarce. Even though they bring a lot of convenience to life, they essentially have the same defects as historical currencies.
Todays near-cashlessness reflects a persistently low interest rate and inflation environment. Such electronic currencies lack monetary independence and privacy compared to cash and real money.
Currency of the Future: Bitcoin
Eventually, we will also see the return of real money.
Money must be a medium of exchange. In other words, it must be available for exchange between different goods or services;
Currency must be a unit of measurement that can be exchanged for goods or services at a set price;
Currency must be portable, Bitcoin can be stored in your brain in the form of 12 or 24 words, which is more convenient than any form of currency;
The currency must be durable, and with the guarantee of strong hash power, Bitcoin is almost impossible to destroy;
The currency must be divisible. Bitcoin can be divided into 100 million shares, and the smallest unit is Satoshi. If necessary, it can be adjusted by changing the protocol in the future;
Currencies must be fungible, with each unit identical to every other.
Like gold and silver, Bitcoin is also scarce, with a total of only 21 million, enough to make it a hard currency that can store value.
Although Bitcoin is in electronic form, the very nature of blockchain technology guarantees its scarcity. Bitcoin retains the essence of the barter era in ancient times. It allows the two parties to trade directly without the intervention of a third-party intermediary.