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Money Through the Ages

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Here I have tried to pick out interesting events in the history of money
that help to form a picture of how we got to where we are now.
9,000 BCE: Cattle—Commodity Money
The earliest forms of commodity money were livestock, particularly
cattle, and plant products such as grain. Cattle have been used as
commodity money from c.9,000 BCE. As such, the cow is probably the
most enduring, if not successful, form of money. They are still used today
in some parts of the world. For example, in March 2018, 100 cattle stolen
in Kenya were believed to be used for paying a dowry25.
Would a cow pass the three ‘is it money’ questions that economists like to
use? History tells us that cows are a medium of exchange, so it ticks that
box. You would assume that if it is used for buying and selling things,
people might have some sort of idea of the price of other objects in cows.
If so, that would make a cow a decent unit of account. But is it a store of
value? Hmm, there are some complexities—the price of cows varies by
breed and age and individuals can drop down dead. On the other hand,
cows have a kind of interest rate, in that they are able to reproduce. So,
while any single cow may not be a very good store of value, a herd
arguably is. Monetary economists enjoy arguing about things like this.
3,000 BCE: Banks
Between about 3,000 and 2,000 BCE, banks were created in Babylon,
Mesopotamia, the land now roughly equating to Iraq, Kuwait, and Syria.
Banks evolved from the warehouses that were places for the safekeeping
of commodities such as grain, cattle, and precious metals.
2,200 BCE: Lumps of Silver
Around 2,250-2,150 BCE silver, ingots were standardised and guaranteed
by the state in Cappadocia (in present day Turkey), and this helped their
acceptance as money. Silver was the ‘gold standard’ of precious metal
money. This notes an interesting shift from using commodities that
clearly have an intrinsic value (cattle and grain that you can eat) to
commodities that have an extrinsic value because of their scarcity and
durability. During this shift, you can imagine people then having the
same arguments as we do today with Bitcoin. ‘Yes, but silver doesn’t have
intrinsic value—I can’t feed my family with it’. At the next dinner party if
‘intrinsic value’ is brought up, you can say ‘Come on guys, we’ve been
having this argument since 2,200 BCE…’
1,800 BCE: Regulation!
If you want to blame someone for regulation, blame Hammurabi, sixth
King of Babylon, who reigned between 1792 and 1,750 BCE and
developed the Code of Hammurabi. This set of laws was once considered
the earliest written legislation in human history, and the 282 case laws
include economic provisions (prices, tariffs, trade, and commerce), family
law (marriage and divorce), as well as criminal law (assault, theft), and
civil law (slavery, debt). It included the very first laws for banking

Just think—those libertarians who proclaim that regulation is
unnecessary, but then demand that something must be done when they
lose money in cryptocurrency scams, are just discovering the value of
regulations that have existed ever since laws were first written down!
1,200 BCE: Shell Money
In 1,200 BCE, cowry shells were used as money in China. Cowries are sea
snails, most commonly found on the shores of the Indian Ocean and the
waters of Southeast Asia. Wikipedia describes cowries as:
a group of small to large sea snails, marine gastropod molluscs in the family Cypraeidae, the
cowries. The word cowry is also often used to refer only to the shells of these snails, which
overall are often shaped more or less like an egg, except that they are rather flat on the
According to the World Register of Marine Species28 (WORMS), the
zoological name for cowries is Monetaria Moneta (Linnaeus, 1758). This
sea snail is so ‘money’ the scientists named it ‘money money!’
In fact, the Chinese named these creatures as ‘money’ well before the
West did—the radical 貝(贝 in simplified Chinese and pronounced bèi),
means shell or currency, and it even looks like one of the cowries. Chinese
words and characters related to money, property, or wealth often use this

As with cattle, the practice of using cowry shells as money survived until
as recently as the 1950s in parts of Africa.
700-600 BCE: Mixed Metal Coins
In 640-630 BCE, we see the earliest examples of coins in Lydia (now
Turkey), which was a trading hub with large gold supplies. The first coins
were made of a naturally occurring mixture of gold and silver called
electrum. It is no coincidence that one of the earliest popular Bitcoin
wallets, created in 2011 by Thomas Voegtlin, is also called Electrum !

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According to the British Museum, these coins were not consistently
round, but were created to various standard weights. It is thought that
the coins were weighed rather than counted for many transactions.
600-300 BCE: Round Coins
The first round coins emerged in China, made of base (non-precious)
metals. These were still commodity money, so their value was the value of
the metal, which was low. Their low value meant that the coins were
useful for daily transactions.
c. 550 BCE: Pure Precious Metal Coins
Lydia, which must have been the Silicon Valley of the Iron Age world,
continued to innovate, producing separate silver and gold coins, and
usage of these started to spread. I suppose this is one of the earliest
examples of ‘FinTech’ (financial technology): using technology to invent
new financial instruments. Next time a banker effuses that they are
pioneers of FinTech, you can tell them that Lydians got there first in 550
According to Amelia Dowler, curator at the British Museum,
Silver was more widely available than gold and with a lower value could be used for smaller
transactions and was therefore better in the marketplace. So, it was silver coinage which
gained rapidly in popularity and, during the sixth century BC, mints opened in Greek cities
across the Mediterranean.
405 BCE: First Example of Gresham’s Law
In 405 BCE, Aristophanes’ famous political satire The Frogs was
produced. It tells of the adventures of Dionysus and his slave in their
quest to bring witty poet Euripides back from the underworld to Athens,
which had become boring. The play contains the first known example of
Gresham’s Law, that bad money drives out good. What this means is that
you’d rather hold on to good/more valuable money and spend the
bad/less valuable money if others will accept it. So if you have the choice
between spending a pure gold coin or a debased gold coin (with other
base metals mixed in), and they both have the same face value, then you
will of course spend the debased one, and the good money disappears
from circulation.
Here is the Chorus lamenting that they now use new ugly copper coins
instead of old gold coins—and with a bit of anti-immigrant sentiment
thrown in for good measure:
The freedom of the city has often appeared to us to be similarly circumstanced with regard to
the good and honourable citizens, as to the old coin and the new gold. For neither do we
employ these at all, which are not adulterated, but the most excellent, as it appears, of all
coins, and alone correctly struck, and proved by ringing every where, both among the Greeks
and the barbarians, but this vile copper coin, struck but yesterday and lately with the
vilest stamp; and we insult those of the citizens whom we know to be well-born, and
discreet, and just, and good, and honourable men, and who have been trained in palæstras,
and choruses, and music; while we use for every purpose the brazen, foreigners, and slaves,
rascals, and sprung from rascals, who are the latest come; whom the city before this would
not heedlessly and readily have used even as scape-goats.
Translation source: libertyfund.org33
345 BCE: Origins of the Words Mint and Money
In the centre of Rome a temple was built, dedicated to goddess Juno
Moneta. Juno was the goddess of protection and Moneta is derived from
the Latin monere, which means ‘to warn or advise’. It is said that Goddess
Juno gave warnings or advice on at least a couple of occasions. First,
when the Gauls sacked Rome in 390 BCE, Juno’s sacred geese gave
Roman commander Marcus Manlius Capitolinus a heads up that the
Gauls were coming, allowing him to protect the Capitol. Second, during
an earthquake when a voice from the temple advised the Romans to
sacrifice a pregnant sow34.
From 269 BCE, the Roman mint was located at this temple, and lasted
some centuries. The English words ‘mint’ and ‘money’ are derived from
Juno Moneta.
336–323 BCE: Gold to Silver Peg
Alexander the Great simplified the silver to gold exchange rate by
declaring a fixed exchange rate of ten units of silver equal to one unit of
gold. This peg eventually failed.
The Americans effectively tried the same thing in the eighteenth century
at rates of 15:1 and 16:1. Later, we will discuss what currency pegs are,
how they are managed, and how difficult they are to maintain. This is
relevant today because there are a number of attempts to create a ‘stable
coin’ cryptocurrency, some of which rely on an entity or automated smart
contract to defend a peg by buying when the price is too low and selling
when the price is too high.
323–30 BCE: Warehouse Receipts—Representative Money
Ptolemy, a Greek bodyguard of Alexander the Great, established himself
as ruler of Egypt. He created a dynasty which ruled Egypt until the
demise of Cleopatra with the Roman conquest of 30 BCE. The Ptolemies,
as the rulers were known, established a system of warehouse accounts
where debts could be repaid by transferring the title to grain from one
owner to another without physically moving the grain stored within.
118 BCE: Leather Banknotes
Square white deerskin leather with colourful borders was used as money
in China. This is possibly the first documented type of banknote. China
would later experiment with paper-based banknotes, then stop using
them for a few hundred years before reintroducing them.
30 BCE–14 CE: Tax reform!
Augustus Caesar, adopted son of Julius Caesar, expanded Rome’s
taxation of the provinces, regularising tax levies which, until then, had
been decentralised to the provinces. He introduced sales, land, and poll
taxes. These taxes weren’t universally unpopular, especially in the
provinces, where taxes until then had been somewhat arbitrary. If you
hate paying taxes, you probably hate paying arbitrary taxes at arbitrary
frequencies even more. Augustus Caesar also issued new, almost pure,
gold, silver, brass, and copper coins.
To 270 CE: Debasement and Inflation
Over the next 300 years, the silver content of Roman coins fell from
100% to 4%. Talk about debasement! But as we saw earlier, the US dollar
has fallen in value by 96% in a third of the time35. Attempts by leaders
such as Emperor Aurelian to purify coinage failed, as Gresham’s Law
kicked in and people circulated their debased coins and hoarded the pure
306–337 CE: Gold for the Rich, Debased Coins for the Poor
Constantine, the first Christian Roman emperor, issued a new gold coin,
Constantine, the first Christian Roman emperor, issued a new gold coin,
the Solidus, which was used successfully and without debasement for the
next 700 years. That is quite some achievement. However he also
produced debased silver and copper coins. So the rich got to use nice
shiny gold coins that retained value while the poor got coins that steadily
decreased in value. Is that surprising?
c. 435 CE: No More Coins for Brits for 200 Years
Anglo-Saxons invaded Britain and coins were no longer used as money
for 200 years! Money, it turns out, can come in and out of fashion,
depending on the politics at the time. Just because we grow up with one
form of money, it doesn’t mean it will last forever.
806–821 CE: Fiat Money in China
Due to a shortage of copper, Chinese emperor Hien Tsung issued paper
money notes for merchants who wanted to make large payments without
the inconvenience of heavy coins. Over the next few hundred years there
was much overprinting and inflation, causing paper money to depreciate
against metals. This is a theme we hear over and over again.
Paper money spread to Europe via Marco Polo, a Venetian who travelled
extensively and learnt of paper money from his travels in China from
Paper money was only used in China for a few hundred years, during
which time inflation soared due to uncontrolled printing of paper money.
In the 1400s, they seem to have stopped using paper money for a few
hundred years.
1300s: British Pennies Shrink Twice
In 1344 and 1351, on two separate occasions, King Edward III reduced
the size and quality of the penny. The King owned the mints, so a smaller
and less fine penny meant that the King could issue more pennies from
the same amount of metal, meaning more profits or seigniorage for the
The debasement of all forms of money that is not commodity money
seems to be a common theme in the history of money.
1560: Gresham’s Law!
Another year, another currency reform: this time Queen Elizabeth I
recalled and melted coins, separating the base metals from the precious
metals. Thomas Gresham became an advisor to the Queen and noticed
that bad money drives out good.
1600s: The Rise of the Goldsmiths
Goldsmiths in Britain became bankers, as their vaults were used for coin
storage, and their notes and receipts became a convenient method of
1660s: Central Banking
The world’s oldest central bank, Sveriges Riksbank, was created in
Sweden. Initially, the Bank was forbidden to issue banknotes due to
lessons learnt from Stockholms Banco, Sweden’s first bank. Stockholms
Banco issued Europe’s first banknotes but got carried away and issued
more than could be redeemed, a money creation technique known as
fractional reserve banking. Stockholms Banco failed when banknote
holders wanted the underlying metal coins back. In 1668, Sveriges
Riksbank was founded and later, in 1701, it was allowed to issue
banknotes, then called credit notes. It gained exclusivity over banknote
printing 200 years later in 1897 with the first Riksbank Act.
printing 200 years later in 1897 with the first Riksbank Act.

The Riksbank is noted for its attitude towards innovation: in July 2009, it
was the first central bank to charge money from commercial banks to
maintain overnight deposits, rather than paying interest, pushing the
overnight deposit rate down to -0.25% (annualised). It deepened this
interest rate, as well as other associated rates, in 2014 and 2015. This was
an effort to stimulate the economy by encouraging the lending and
spending of money rather than hoarding, when quantitative easing was
not having the desired effect.
1727: Overdrafts!
The Royal Bank of Scotland was founded, introducing an overdraft
facility where certain applicants were able to borrow money up to a
certain limit and were charged interest only on the amount drawn, rather
than on the full amount. This was a form of FinTech.
1800-1860: Cowrie Depreciation
Here is a powerful example of how the supply of money causes price
inflation: When cowrie shells were first introduced to Uganda around
1800, a woman could typically be bought for two shells. Over the next 60
years, as more shells were imported at scale, prices rose, and by 1860 a
woman commanded a price of one thousand shells.
Rai Stones
No history of money would be complete without mentioning the Rai
(sometimes called Fei) stones still in use on the island of Yap.

Yap is a small island in the Federated States of Micronesia, approximately
2,000km east of Manila, Philippines. It is known for its superb SCUBA
diving and its Rai stones. Rai stones are large, circular stone discs with
holes in the middle, to help transportation. They are made with stone
quarried from Palau island, about 400 km away, brought back by canoe
with some effort, and still are used as money today.

John Tharngan, Historical Preservation Officer of Yap, in an interview
with the BBC37, explains the origin of the Rai stones:
Several hundred years ago, some people from Yap went on a fishing trip and got lost and
arrived accidentally in Palau. They saw the limestone structures that occur naturally on that
island and thought they looked great. They broke off a piece of stone and did a bit of carving
on it with shell tools. They brought home a stone that was shaped like a whale, which is
called ‘Rai’ in Yapese and that is where the word comes from.
Rai stones come in all sorts of sizes, from a few hand spans to over 3
metres in diameter, and have a value mainly based on their history, but
also on their size and finish. According to monetary economist JP
Koning’s excellent blog Moneyness38, W.H. Furness, who spent a year on
the island, wrote in his 1910 book The Island of Stone Money, Uap of the
A rai spanning a length of three hands and of good whiteness and shape ought to purchase
fifty ‘baskets’; of food—a basket is about eighteen inches long and ten inches deep, and the
food is taro roots, husked coconuts, yams, and bananas;- or, it is worth an eighty or a
hundred pound pig, or a thousand coconuts, or a pearl shell measuring the length of the hand
plus the width of three fingers up the wrist. I exchanged a small short handled axe for a good
white rai, fifty centimeters in diameter. For another Rai, a little larger, I gave a fifty pound
bag of rise… I was told that a well-finished rai, about four feet in diameter, is the price
usually paid either to the parents or to the headman of the village as a compensation of the
theft of a mispil [a woman].
In terms of recording the of ownership changes of these unwieldy pieces,
Tharngan comments:
There’s no problem in knowing who owns which piece because all the pieces next to a
dwelling tend to belong to that house. All those which are found on dancing grounds—their
ownership does shift from time to time, but the shift is always done publicly in front of chiefs
or elders, so everyone remembers what belongs to whom.
There is also the case of a large stone that was lost at sea, recorded by
Furness who heard the legend recounted by a local fortune teller and
exorcist. The fortune teller told Furness that a few generations ago a large
stone was lost at sea, and even though it is not physically present and no
one can see it, claims on the stone continue to have value.
one can see it, claims on the stone continue to have value.
This particular Rai stone is used by some economists as an example of
fiat money existing in primitive societies. However, Dror Goldberg argues
in a 2005 paper, Famous Myths of Fiat Money39 that this is not fiat.
There was no evidence of this stone being used in trade, as ownership
remained in the family, and the value of the lost stone was agreed by the
community, not by any legal decree. Goldberg argues that Rai stones have
legal, historical, religious, aesthetic, and sentimental value, and are
therefore not fiat, and furthermore, there are no good examples of fiat
money existing in primitive societies.
1913: Birth of the US Federal Reserve System
In 1913, the Federal Reserve Act was passed into law in the USA. This
created the Federal Reserve System, the central banking system of the
USA. The act was drafted by influential commercial bankers and gave the
central bank the monopoly on the price and quantity of money, and had
the mandate to maximise employment and ensure price stability. The
system has public and private sector components, and the regional
Federal Reserve Banks are owned by large US private banks. The Federal
Reserve is discussed in greater detail in the Appendix.
The US dollar remained on a gold standard for a period of time under the
Federal Reserve System, as we will see in the section about gold
1999: The Euro
On 1 Jan 1999, the Euro officially became the currency of the member
states of the European Union: Belgium, Germany, Spain, France, Ireland,
Italy, Luxembourg, the Netherlands, Austria, Portugal, and Finland. Euro
notes and coins came into circulation in 2002. The currency is now the
official currency of nineteen of the current twenty-eight EU states, six
official currency of nineteen of the current twenty-eight EU states, six
non-EU jurisdictions, and a number of other non-sovereign entities.
2009: Bitcoin!
On 3 January 2009, the first Bitcoin was brought, or ‘mined,’ into
existence. How does Bitcoin relate to money? We’ll discuss Bitcoin in a
lot more depth later on, but it was first commonly described as a
‘cryptocurrency’. And simply because of the word ‘currency’ people start
thinking… Is it money? Does it fulfil the traditional three functions of
money? What is money anyway? Does Bitcoin count?
Defining Bitcoin is a popular activity for regulators and policymakers who
need to determine if bitcoins fall under their purview or not. I suspect
things would have worked out differently had Bitcoin been originally
described as a ‘cryptocommodity’ or a ‘cryptoasset’. It turns out that
Bitcoin is hard to shoehorn into existing categories, so perhaps it, along
with other crypto-things, belongs in a new asset class.
That fact is, for our purposes, the definition of Bitcoin doesn’t matter. It
doesn’t matter how you define money, it doesn’t matter it Bitcoin fits the
bill or not. Bitcoin has some properties that make it appear from one
angle like money, and from another angle like a commodity such as gold.
Money is in the eye of the beholder. Nowadays, we have so many different
forms of money, all with slightly different characteristics and trade-offs,
that Bitcoin and its siblings can, and will, sit alongside the other forms.
Good Enough Money
I like to use the concept of ‘good enough money’. If the money you want
to use is good enough for your purposes, then that is ok. For example,
when I borrow cash from my colleagues to buy my lunch, sometimes I
pay them back in Grab credits.
Grab is a ride-hailing app similar to Uber, but localized for Asia, and it
also has a wallet function which you top up with your credit or debit card.
The credits are denominated in local currency and can be used to pay for
journeys, sent to other users, or used to pay for goods in some shops.
Some of my colleagues use Grab for their taxis, so paying them back in
Grab credits is fine for me and fine for them. So, Grab credits are ‘good
enough money’ as far as we are concerned for that particular small
denomination use. But I wouldn’t buy a house with Grab credits, nor
would a company settle a large invoice with it. It wouldn’t be ‘good
enough money’ in those situations.
It seems that people and companies will accept a wide range of forms of
money so long as they can do the next thing with it—whether that is
paying for a taxi, settling invoices, or saving it for long term value

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