All Things About Money

The history of money is not just paid in bills.  Today, the most common form of currency is fiat money in the form of paper currency.  Fiat money is money that is not backed by a reserve, such as gold or silver and is considered to be the same fiat “worth” under any circumstances.  Fiat currencies, such as dollar bills and coins, are used in all major currencies in the world today.  However, when looking at the history of money, one can see that fiat currencies are a relatively modern invention.  Silver and gold were the more common forms of currency for centuries and although paper currency has been around since the 7^th century, it was the silver and gold reserves which gave paper currency its initial worth.

A brief history of silver and gold as currency

Exactly when humankind first began using a money system is debated by scholars.  The earliest forms of trading for goods and services were done by bartering, that is to say, by trading goods and services for other goods and services.  However, with the discovery of silver in Greece at around approximately 3000 BC, the concept of currency began to take shape and spread to many areas of the world.  In China, the use of metallic silver with silver bullion was the first known use of silver as currency.  As more areas of the world began to be explored, more silver was found and subsequently more countries began using and importing it for the use of currency.  Many countries made industries out of the mining and exporting of silver for currency.  For example, the regions of Bolivia, Peru and Mexico provided over 80% of the world’s silver use just for currency from 1500 to 1800.

Silver was also used for coins in currency throughout the world.  However, the use of silver in coins before the 20th century did not have the same connotations that it does today.  Today, we use coins as a static form of currency–for example, a quarter is worth 25 cents, no matter what.  However, for most of history, coins made from precious metals were worth how much the weight of the precious metal in the coin was worth.  A coin which had more silver than another coin, then, was worth more.  As the technology of weighing and creating coins developed, it became easier to create coins which weighed an exact amount and could be used more like modern day coins, but the weight of the precious metal (such as gold or silver) was still important.

Like silver, the history of gold being used as money dates back thousands of years.  Gold coins themselves date all the way back to the 6th century, in what we now call western Turkey.  The coins were made from gold depositions and, like silver, used as a form of currency.  Civilizations such as Greek and Rome benefitted early on from using silver and gold coins and reserves for currency, and in 1300, the discovery of new gold mines in Hungary made gold currency and coins available throughout Europe.  The weight of the gold in the coin played a huge role in its worth.  A small coin was not worth as much as a large coin and a coin made from solid gold was worth more than gold mixed with other materials.

It’s important to note that while coins of gold and silver were being used, paper money was also in circulation in most countries.  However, the use of paper currency in the past greatly differed from the concept of paper currency we have today.  In general, paper currency was only used as a type of promissory banknote – that is, a paper note was basically an I.O.U. that would be backed with gold, silver or other precious items at a later time.

However, the use of gold and silver as currency began to wane in the late 18^th century and this trend would continue throughout the 19^th century.  Dwindling reserves of gold and silver made it impossible for many people to conduct business based on the promise of silver, gold or other precious items as they had before.  Although forms of fiat money have been used sporadically since the money system itself was created, such as in Tang Dynasty China, it was not until the 20^th century that fiat money became commonplace.  Although fiat money has the benefit of always remaining the same theoretic value, thus reducing confusion or uncertainty among those that use currency… the downside is that, in reality, paper currency has no value by itself.  It can be printed whether or not there is anything (gold, silver, etc) to back it up and it is essentially worthless.  Unlike currency made from gold and silver, paper currency is just paper and ink, which has no monetary value outside of a fiat currency system.

The best option?

Many people wonder whether they should invest in gold and silver or stick with their paper fiat currency.  With the current state of the worldwide economy, many people are beginning to have concerns with the global money system and fiat currency itself.  They are turning instead to gold and silver, whether it is with gold and silver coins or other reserves of gold and silver, as they have a more definite value and are not as unreliable and shaky as paper currency.  Paper currency can be unstable but precious metals have survived since 3000 B.C.