The history of money: How currency evolved from pelts to paper (2024)

Editorial Note: IntuitCredit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.

Advertiser Disclosure

We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

The history of money is fascinating and goes back thousands of years. From the early days of bartering to the first metal coins and eventually the first paper currency, money has always had an important impact on how we function as a society.

In this guide, we’ll cover the history of money and how human beings have advanced from using a barter economy to a complex financial system with several forms of currency.

  • What is money?
  • When was money invented?
  • History of bartering
  • First metal money — coins
  • First paper money
  • The introduction of banks
  • The gold standard
  • Modern-day money
  • The impact of money throughout history
  • What’s next: How can I manage my money?

What is money?

Money often has no intrinsic value. Instead, money is an object with a value placed on it, allowing for the trade of goods and services. Some money, such as metal coins, has actual value in terms of the materials used. However, even these currencies derive their monetary value more from the faith people in a society put in them. Throughout the evolution of money, currencies have taken several different forms.

When was money invented?

The earliest evidence of money comes from around 3,000 BC in ancient Mesopotamia (modern-day Middle East). Citizens would draw agricultural symbols on clay tablets to represent debts. This is the first time in history we’re aware of people using a symbolic representation of value rather than a physical exchange, as in a barter market system.

The history of money: How currency evolved from pelts to paper (1)Image: the-history-of-money

History of bartering

Before the invention of money, people traded goods and services using the barter system. One farmer might trade livestock for vegetables, while another may trade labor or lumber for livestock. These transactions were the early building blocks of our modern economy and would go on to create the future of money the world knows today.

The history of bartering dates back to 6000 B.C. when Mesopotamian tribes introduced the concept to the Phoenicians. Goods were exchanged in the absence of money, including things like tea, salt, weapons and food. As time went on, bartering continued to evolve, with Colonial Americans trading pelts, crops and muskets.

The first metal coins date back to the 7th century BCE in Lydia (modern Turkey) and China. In China, metal coins were made of bronze and shaped like farming tools. In Lydia, coins were made of an alloy of gold and silver called electrum. Lydian staters were the first coins to be officially issued by a government body. Early iterations of coins were also used by ancient Greeks, starting in the late 7th century BC.

The history of money: How currency evolved from pelts to paper (2)Image: first-metal-money

First paper money

The first paper money was created in China during the Song Dynasty in the 11th century CE. Trade played a huge part in its creation. For hundreds of years before the invention of paper money, bronze and copper coins were the main currencies in China. As international trade increased, the weight of carrying these coins became a barrier.

Around 900 CE, merchants trying to get around the weight issue of carrying coins began trading transaction receipts. Early Song authorities gave a few shops a monopoly on issuing these deposit receipts. Eventually, in the 1020s, the government took over and began issuing the receipts as the first official paper money.

The history of money: How currency evolved from pelts to paper (3)Image: first-paper-money

The introduction of banks

Today’s banking system in the West has its roots in the early to mid-Middle Ages. In this time period, three primitive banking professions emerged:

Pawnbrokers — They functioned similarly to modern-day pawnshops, offering temporary loans in exchange for personal property.
Money-changers — These citizens charged a fee to exchange currencies.
Merchant bankers — At the top of the social classes, these wealthy citizens offered loans from either personal funds or from partners’ funds.

Many of these banking operations originated in regions of Italy, including Venice, Florence and Rome. Over time, these services converged with the onset of modern banks.

In the United States, a national bank began with a plan by Alexander Hamilton, the first Secretary of State. He thought a national bank would help stabilize the nation’s credit. The first bank in the U.S., The Bank of the United States, was established in 1791.

See your net worthGet Started

The gold standard

In 1816, gold became the standard of value in England. Each bank note represented a certain amount of gold, so only a limited number of bank notes could be printed. This gave previously unbacked currency some semblance of value and stability. By 1900, the United States had followed suit with the Gold Standard Act. While the gold standard would slowly fade out of usage by the 1970s, the gold standard played an important role in the history of U.S. money.

Modern-day money

Now that you have a better understanding of the history of currency, let’s take a look at how it’s used today. Along with paper money and coins, modern-day money has also branched out to include credit and debit cards, online payments and cryptocurrency.

Credit cards & debit cards

When it comes to convenience, credit cards and debit cards may be some of the most popular choices.

Credit cards allow lenders to set a credit limit on your card, so you can spend up to a certain amount before you have to start paying it back to continue using your card. The history of credit cards in America goes back to the 1950s when Diners Club issued the first charge cards.

A debit card, on the other hand, holds a set amount of money from your bank account, which decreases with each purchase you make. Debit cards did not make their debut in America until after credit cards. Some point to the Bank of Delaware’s debit card pilot program in 1966 as the first time debit cards were used in America.

Online payments

Money used to be exchanged physically, whether people paid with coins or paper money. However, with the internet boom and the growth of e-commerce, online payments became more popular.

The first online marketplace was called Boston Computer Exchange, and it launched on the web in 1982. By 1995, Amazon and eBay launched, and both sites made 1 million sales by 1997. In 1998, PayPal launched, providing online shoppers with a more secure way to make payments. In 2009, Square launched, helping retailers accept debit and credit card purchases online and in stores. Today, around 96% of Americans have made purchases online.

Digital currency

In 2009, bitcoin launched and became the first successful decentralized cryptocurrency, which means it’s not controlled by a central political or corporate authority. After its success, other cryptocurrencies like Litecoin and Dogecoin appeared, trying to stake a claim in the market.

These currencies have a value assigned to them, just like any other type of money, but they use cryptographic technologies to ensure secure transactions. Cryptocurrency transactions represent billions of dollars traded each day.

The impact of money throughout history

Money is arguably one of the most important parts of human history. Its invention allowed our ancestors to break out of the constraints of the barter system, where they had to physically exchange goods and services. As societies became larger, you can imagine how difficult and complex bartering may have become: If you don’t have the necessary goods for a direct trade, you might have spent hours or days arranging trades between three, four or even more artisans. Or, you may never have been able to come to a trade that all parties deemed fair.

Likewise, paper currency allowed society to function more easily on a wider scale. Because paper currency was much lighter than heavy metal coins, it made international trading more convenient. Today, the decentralization of digital currency may lead to an even wider global economy.

See your net worthGet Started

What’s next: How can I manage my money?

Knowing about the history of money and how it impacts your life can be important, but understanding how to manage your money may be even more crucial. Throughout the history of money, people have found ways to save, invest and spend wisely — important skills for building a solid financial foundation.

If you want to manage your money better, one skill you may find helpful is learning how to budget. Budgeting can help you get and stay out of debt, build an emergency fund, save up for retirement and more.

Sourcing

The history of money: How currency evolved from pelts to paper (2024)

FAQs

The history of money: How currency evolved from pelts to paper? ›

The barter system likely originated 6,000 years ago. The first coin we know of is from the 7th century BC and the first paper money came into the world around 1020 AD. Eventually, medieval banking systems gave way to the gold standard, which in turn gave way to modern currency.

How did money evolve throughout history? ›

People bartered before the world began using money. The world's oldest known coin minting site was located in China, which began striking spade coins sometime around 640 BCE. Since then, the world adopted banknotes and moved into digital forms of payment, including virtual currencies.

How did money become paper? ›

History. Paper currency first developed in Tang dynasty China during the 7th century, where it was called "'flying money'", although true paper money did not appear until the 11th century, during the Song dynasty. The use of paper currency later spread throughout the Mongol Empire or Yuan dynasty China.

What are the 5 stages of money's evolution? ›

There are more than five stages of money's evolution. Still, five notable stages include: commodity money (i.e., grains, livestock), metallic money (i.e., coins), paper money, credit and plastic forms of currency, and digital money.

Why did we switch to paper currency? ›

Paper money in the United States dates back to 1690 and represented bills of credit or IOUs. New currencies were introduced in the U.S. in 1861 to help finance the Civil War. In 1996, a series of bills were introduced that used new methods to prevent counterfeiting.

What is the oldest form of currency? ›

The Mesopotamian civilization developed a large-scale economy based on commodity money. The shekel was the unit of weight and currency, first recorded c. 2150 BC, which was nominally equivalent to a specific weight of barley that was the preexisting and parallel form of currency.

When did the US start using paper money? ›

The first U.S. coins were struck in 1793 at the Philadelphia Mint and presented to Martha Washington. The government did not issue paper money until 1861.

Is a $2 bill worth $5000? ›

Although $2 bills are rare to find, if you own one, there's a chance it has a high value. Based on specific factors, some versions of the currency may be worth up to $5,000, per the US Currency Price Guide. FOX 13 Tampa reported that these bills were discontinued by 1966 but brought back 10 years later.

What did money look like before paper? ›

Cowrie shells and other items from nature

Some of the earliest currencies were objects from nature. A notable example is cowrie shells, first used as money about 1200 BCE. Although they may seem a pretty random choice, the shells had a number of advantages: they were similar in size, small, and durable.

Who invented paper money and why? ›

The Chinese issued the world's first paper money

They could be carried on strings, but paper money was even easier to handle. This early paper money was in use when Marco Polo visited Kublai Khan in the 13th century. The note, called a kua, is the equivalent of 100 coins and dates from the Ming Dynasty, A.D. 1368–99.

What is the first stage of evolution of money? ›

The Evolution of Money - Key takeaways

The following are the stages of money: commodity money, metallic money, paper money, and electronic money.

What evolution of money has facilitated? ›

Evolution of money has facilitated. Money can be defined as anything which is generally accepted as a medium of economic exchange in the form of notes or currency. It acts as a measure and store of value. Hence, the evolution of money has facilitated a common unit of exchange, store of value, and transfer of value.

What is the evolution of money and function of money? ›

In the Middle Ages, the keeping of values with goldsmiths, persons trading with gold and silver items, was common. The goldsmith, as a guaranty, delivered a receipt. With time, these receipts came to be used to make payments, circulating from hand to hand, giving origin to paper money.

When was God We Trust added to money? ›

The Coinage Act of 1873 allowed for the motto to be printed on all newly minted coins, and on July 11, 1955, Congress passed H.R. 619 which mandated "In God We Trust" be included on all U.S. currency. "In God We Trust" first appeared on paper money in 1957 on the one-dollar silver certificate.

Do they still make $2 bills? ›

Today, the general public is still largely unfamiliar with the notes because they are not widely circulated and continue to be hoarded. The common misconception that the $2 note is no longer being produced also remains, though $2 notes have been printed since 1862, except for a 10-year hiatus between 1966 and 1976.

Is there a $3 bill? ›

Though a gold three-dollar coin was produced in the 1800s, and the Bahamian dollar (which is pegged to the US dollar) has a $3 banknote, no three-dollar bill has ever been produced in the United States. Various fake US$3 bills have also been released over time.

What money did humans evolve from? ›

But the roots of those modern modes of payment may lie in the Sumerians' tokens. Such early accounting tools ultimately evolved into a system of finance and money itself —a symbolic representation of value, which can be transferred from one person to another as a payment for goods or services.

What was life like before money was invented? ›

Before the creation of money, exchange took place in the form of barter, where people traded to get the goods and services they wanted. Two people, each having something the other wanted, would agree to trade one another. In economics, we call this a double coincidence of wants.

What is the conclusion of the evolution of money? ›

Conclusion. The evolution of money is proof of society's ability to adapt and innovate. From the barter system to the digital currencies of today, money has continually evolved to meet the changing needs of the world.

How did money emerge out of a barter economy? ›

Money emerged out of the barter economy whereby Goldsmiths kept gold for people and gave them receipts; instead, those receipts became the "money." The main reason for emerging of money was the challenges of the barter trade.

Top Articles
Latest Posts
Recommended Articles
Article information

Author: Twana Towne Ret

Last Updated:

Views: 5602

Rating: 4.3 / 5 (44 voted)

Reviews: 83% of readers found this page helpful

Author information

Name: Twana Towne Ret

Birthday: 1994-03-19

Address: Apt. 990 97439 Corwin Motorway, Port Eliseoburgh, NM 99144-2618

Phone: +5958753152963

Job: National Specialist

Hobby: Kayaking, Photography, Skydiving, Embroidery, Leather crafting, Orienteering, Cooking

Introduction: My name is Twana Towne Ret, I am a famous, talented, joyous, perfect, powerful, inquisitive, lovely person who loves writing and wants to share my knowledge and understanding with you.