Contest

1. Introduction ............................................................................................................................................... 1

2. The Origins of money ............................................................................................................................... 2

2.1. Money .................................................................................................................................................... 2

2.2. When was money invented .................................................................................................................... 2

2.3. How long has money been around ......................................................................................................... 2

2.4. Earliest form of money: the barter system ............................................................................................. 2

2.5. Commodity money................................................................................................................................. 3

2.6. Gold and silver trading........................................................................................................................... 3

2.7. Coin minting .......................................................................................................................................... 4

2.7. Representative money ............................................................................................................................ 4

2.8. Gold standard ......................................................................................................................................... 4

2.9. The Bretton Woods Agreement ............................................................................................................. 5

2.10. Fiat money ........................................................................................................................................... 5

2.11. The banking system ............................................................................................................................. 6

2.12. Foreign exchange trading ..................................................................................................................... 6

2.13. Digital money....................................................................................................................................... 7

2.14. Crypto currencies ................................................................................................................................. 7

2.15. Cashless societies ................................................................................................................................. 8

3. Conclusion ................................................................................................................................................ 9
1. Introduction
Perhaps the most common claim with regard to the importance of money in our everyday life is
the morally neutral if comically exaggerated claim that ‘money makes the world go round’.
Equally exaggerated but showing a deeper insight is the biblical warning that ‘the love of money
is the root of all evil’, neatly transformed by George Bernard Shaw into the fear that it is rather
the lack of money which is the root of all evil. However, whether it is the love or conversely the
lack of money which is potentially sinful, the purpose of the statement in either case is to
underline the overwhelming personal and moral significance of money to society in a way that
gives a broader and deeper insight into its importance than simply stressing its basically
economic aspects, as when we say that ‘money makes the world go round’. Consequently
whether we are speaking of money in simple, socalled primitive communities or in much more
advanced, complex and sophisticated societies, it is not enough merely to examine the narrow
economic aspects of money in order to grasp its true meaning. To analyse the significance of
money it must be broadly studied in the context of the particular society concerned. It is a matter
for the heart as well as for the head: feelings are reasons, too.

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2. The Origins of money

2.1. Money
Money is an essential medium of exchange that can take many forms. Whether money is
represented by a bead, metal coin, paper note, or string of code generated by a computer, its
value is not determined by its form. The value of all money is determined by the importance
other people place on it as a tool of exchange.

Money is primarily used as a medium of exchange, unit of measurement, and a storehouse for
wealth. Totalling the many uses and forms of money, the entire global wealth count was
estimated to be $463.6 trillion by the end of 2022.

2.2. When was money invented

The concept of money has been around for thousands of years, so its invention is difficult to
pinpoint. There is evidence of money being used in ancient civilisations in Mesopotamia and
Egypt, where they used clay tablets to record debts and transactions. However, the first physical
forms of money are believed to have emerged in China around 1000 BC in the form of cowrie
shells as currency.

2.3. How long has money been around

Money has been around for at least 5,000 years, with the earliest forms being in the form of
commodities such as shells, salt and livestock. Over time, the concept of money evolved, and
new forms of currency were introduced.

2.4. Earliest form of money: the barter system

The earliest form of money existed only as a concept through the practice of bartering. In a barter
system, people exchange goods and services directly without the medium of money. When
bartering, two parties must agree on a fair exchange rate of goods and services. For example, one
person might trade two chickens for a new pair of sandals or a bag of rice.

Barter systems have many limitations. For a successful barter, you must find someone who has
the exact thing you need and is willing to trade it for something you can provide. If there is more

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than one person who is willing to barter, there is no way to standardise the value of a barter. One
cobbler may demand three chickens for a pair of shoes, while another cobbler in a neighbouring
town may only want one chicken in exchange for a similar pair of shoes.

The cost of traveling one town over for a better exchange rate adds another element to bartering,
especially if you’re already in need of new shoes. To better quantify the costs of various goods
and services, people began using commodity forms of money.

2.5. Commodity money

Commodity money is the first tangible form of currency. Popular types of commodity money
include salt, shells, beads or other valuable items that could not easily be reproduced. With the
development of commodity money, a person no longer needed to find someone who wanted to
enter into a one-for-one barter. Instead, they could exchange commodity money for a good or
service, and the person paid was then able to use the commodity money they received for any
future transactions.

As societies became more complex, people began using precious metals like gold and silver as
commodities. These precious metals were harder to come by and more difficult to produce than
previous commodity monies. They were also durable and held inherent value depending on the
metal’s properties. The use of precious metals as commodity money eventually gave way to coin
minting.

2.6. Gold and silver trading

As we’ll see later with representative money, gold and silver will continue to play a large part in
the value of currencies despite moving further from commodities towards paper money. In fact,
many people still speculate on the value of precious metals today through trading gold and silver.

With City Index you can trade gold and silver via CFDs. Follow these steps to get started:

 Create a City Index account or log in if you’re already a client

 Choose which gold or silver market you want to trade

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  Open your first position

 Monitor your trade using technical and fundamental analysis

2.7. Coin minting

Coin minting is the formation of metal currency produced to a standard weight and size. Coin
minting first began in 600 BC Lydia, a kingdom in ancient Greece. The uniformity of metal
coins made money much easier to carry and trade while also reducing the risk of fraud. They also
allowed for a divisional table of coins, where one coin equals the value of five less coins, and so
on.

Coin minting marked a significant moment in the history of money. No longer was the value of
money derived just from the object of exchange. Instead, money began to represent a value
ascribed to it by the government issuing the coins.

2.7. Representative money

Representative money was developed as an easier way to conduct financial transactions without
having to always carry weighty coins. Representative money is often printed on paper and
represents something of value without holding intrinsic value.

Unlike the next form of money, fiat, representative money has a direct tie to a commodity or
other physical asset with a tangible measure of value supporting the face value of representative
money.

2.8. Gold standard

The gold standard is an example of representational money used throughout many countries in
the 19th and early 20th centuries. It linked a country’s currency to the value of gold, backing
each unit by a specific amount of gold. This system directly ensured the value of paper currency
notes. As more countries adopted the gold standard, it also provided an easy exchange rate
among countries and helped keep inflation in check by preventing any sharp changes in value.

However, the demand for more money eventually outstripped the supply of gold. To satisfy this
change, dozens of countries convened to establish the Bretton Woods system. The system was a
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negotiated monetary order intended to regulate economic relationships between 44 different
countries, encouraged by the economic collapse of many countries following World War II. A
collective agreement was reached that some new order needed to be established to maintain
global economic security. Hence the 1944 Bretton Woods Agreement.

2.9. The Bretton Woods Agreement

Countries included in the Bretton Woods system agreed to peg their currencies within 1% of
fixed parity rates to the US dollar. The dollar was then backed by bullion gold at a rate of $35
per troy ounce of gold. The countries also established the International Monetary Fund (IMF) to
monitor exchange rates and ensure no country’s foreign reserves diminished too low to maintain
its set dollar peg.

In the summer of 1971, The US ended the dollar’s fixed conversion rate to gold, effectively
ending the Bretton Woods system as well. This converted the US dollar and many other major
currencies into fiat money. The IMF still monitors economic health of countries, but it can only
recommend policies and facilitate transactions between countries to promote global financial
stability.

2.10. Fiat money

Fiat money is similar in form to representative money, but instead of being backed by a real
commodity, its value is established by the backing of a government. Fiat money holds no
intrinsic value, and it can even hold risk when a government is unable to support the value of its
fiat money.

The value of fiat currency is determined by floating exchange rates, which rise and fall in
response to economic events and manipulation by central banks. This is different to the fixed
exchange rates common during the Bretton Woods system.

Floating exchange rates function by changes in supply and demand of other currencies. In a
floating exchange rate, a country’s currency demand is balanced by its international trade to
maintain equilibrium in its balance of payments (BoP). You can learn more about the differences
between fixed and floating exchange rates here.
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2.11. The banking system
Central banks and the banking system at large play a huge role in controlling the value of fiat
money. Most notably, these banks control interest rates and the money supply to manage how
quickly inflation occurs. Inflation is the rate at which prices rise and is generally caused by more
workers entering the market and earning higher wages. In a successful economy, a steady level
of inflation is expected.

However, inflation too high or too low can cause serious trouble for free-floating fiat currencies.
Typically, imbalanced production in one country can create rapid inflation, causing one currency
to depreciate against another. If inflation were to skyrocket, foreign goods and services will
become cheaper relative to domestic ones. This change influences consumer preferences and
causes imports to increase, causing more of that currency to spread among the global forex
market.

Crude banking establishments have existed at almost all points in history. As early as 2000 BC,
empires in China, India, Assyria and Greece all set up some type of banks that issued loans and
held deposits. But these systems disappeared with the collapse of each empire. Banks as we
know them today have only existed since the 16th century. Their functions include holding
deposits, exchanging currencies, issuing debts and practicing fractional reserve banking.

2.12. Foreign exchange trading

With the free float of national currencies, traders and investors were able to begin speculating on
the future value of currencies. Forex traders buy and sell currencies to take advantage of
fluctuations in exchange rates. They study national economies and make trades based on future
projections.

Forex trading is the largest financial market in the world, with over $7.5 trillion changing hands
every day. It experiences a lot of volatility, giving trades ample opportunities to enter the market.
However, the large swathe of factors affecting a currency’s value make forex a complicated
market for traders to learn.

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You can learn more about forex in our trading academy or practice trading with a demo forex
trading account. Once you feel confident in your abilities, follow these steps to start trading forex.

 Open a City Index account, or log in if you’re already a customer

 Search for the company you want to trade in our award-winning platform

 Decide to go long or short with CFDs

 Choose your position and size, and your stop and limit levels

 Place the trade

Alternatively, you can practise trading shares in a risk-free demo account.

2.13. Digital money

The innovation of fiat money has also allowed for online transactions, as now financial
exchanges can be logged digitally through verified financial institutions without physical
representations ever changing hands. Digital money is characterised as any money transaction
that only takes place electronically, with no physical money being exchanged. Digital money
greatly improves the monetary system, allowing for instantaneous transactions across borders
and speeding up the implementation of monetary policy through central banks.

Digital money can represent fiat currencies exchanged using credit cards or online banking apps.
More often though it is used to describe cryptocurrencies. Crypto currencies are decentralized,
digital currencies that can be used and speculated on like other currencies.

2.14. Crypto currencies

Crypto currencies were first created in 2008 with the introduction of bitcoin, a decentralised
currency created by the anonymous founder Satoshi Nakamoto. To be decentralised, bitcoin
transactions are recorded on a public blockchain hosted by independent computers around the

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world. This network of computers individually verifies every exchange made with bitcoin and
authenticates legitimate transactions.

There are now tens of thousands of different crypto currencies in use with each one various uses
and governance depending on who created them. Some crypts are occasionally ‘burned’ by
developers to tighten the supply; others known as stable coins are backed by fiat currencies like
the US dollar. Many crypto currencies are made for use on their own block chain to pay for
related applications, creating miniature financial ecosystems.

2.15. Cashless societies

The advantages of digital money have prompted some countries to experiment with cashless
economies. Countries like Sweden, China and the Bahamas have all done major research into a
national digital currency or eradicating fiat currencies completely. Some brick-and-mortar
businesses have also done away with cash payments to dissuade counterfeit bill concerns or
potential register hold ups.

There are downsides to cashless societies though. Implementations of such would widen the
economic disparity between those with easy access to digital tools and those without. It may also
hinder people traveling across countries whose own economies are more traditional. There are
also frequent fees associated with digital banking or currency conversions that dissuade some
people from going cashless.

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3. Conclusion
The work has a conclusion; money has been around almost as long as we have. It’s evolved from
a simple system of exchange to a guiding element of almost every action we make. In this
timeline we cover all types of money. And digital money can represent fiat currencies exchanged
using credit cards or online banking apps. More often though it is used to describe crypto
currencies. Cryptocurrencies are decentralized, digital currencies that can be used and speculated
on like other currencies.