Have you ever wondered how the world would have been without money? This was aeons ago off course, when what nature provided for was enough to survive. And nature provided in abundance.
Fruits for food, leaves for clothes, and wood to build a house. Roti, kapda aur makaan.
The only fear to live in was fear of wild animals. Because humans learned to domesticate the quieter lot.
Life was going as usual when someone figured out growing grains and someone had super active cattle.
Now there was someone who whiled away time working on woods and ended up with some tools of use. Someone else who decided to figure out what all the boulders were, had learned to carve them and discovered metal and made better tools!
(I would have never been able to imagine how things would have started, had it not been for games like Rise of Nation and Age of Empire.)
Overtime, one person had excess of something that other needed. And so the grain guy went to cattle guy and offered food for sheep and cow. The wood guy exchanged his wood and tools for food and cattle. The stone guy went the same way.
This exchange of goods is barter system.
Now people had more than the roti, kapda and makaan.
The Cowry Shells
Barter system had an issue. If you don’t have what I need, there was no reason for me to give you what you need.
The entire concept of barter was based on the premise that two people have excess of exactly what the other one needed!
Needless to say there was struggle. To find that one person who not only has what you need but also need what you have!
And therefore something was required that everyone could own and barter. A common commodity that could be exchanged. That no one would mind owning.
So you have wood, I have food and someone has metal. But you have cowry shells too!
I don’t want the wood you have, but I will give you fruits and you give me cowry shells. Now I will take these cowry shells to barter them with someone who has metal.
Come to think of it, today we make curtains out of cowry shells and hang them in balcony!
While people in one part of the world were using cowry shells, a King in Turkey did not like heavy items in his pocket. So one fine day , he took the shell and tried to hammer it flat. It broke.
He then took small piece of metal and hammered it flat. Voila! “This looks light and small”, he said. He held it in his hand, against the bright sunlight, walked to his balcony and announced to the world that this little thing here shall be used for trades now!
Off course that’s my imagination but I would have announced it like that if I was going to introduce something so revolutionary!
Then someone used their mind and decided the weight of metal will decide it’s value. Then different rulers tried stamping their picture, their kid’s picture, some even tried to stamp their goat’s face on the coin.
Then off course the flat stamped coin would protrude and pinch at all the wrong places and someone decided to round the edges.
Later people went full crazy and punched a hole in center, used different metals, different stamps etc.
Remember nature provided in abundance. Now people had a lot of certain things – grains, metal, gold and human had figured the coins! They wanted to store it all somewhere safe.
In Egypt for example people started storing their gold in temples and got grains in return. Because someone was also storing grains. Temples are one of the earliest forms of banking system.
Initially the record keeping would be done with sticks, marking on clay etc.
The intelligent priest figured the abundant things can be loaned out too.
One thing led to other and the structure was formed. More on that later.
China, all this while was high on something legit. It was on a trip of its own.
When the world shifted from barter to cowry shells and other small items to solve the problem of barter, China did not find Cowry shells appealing enough.
Someone decided to make miniature of everything that was being traded and use them as currency.
Now imagine, carrying small knives and spade and arrows in pocket! Soon sense prevailed and they shifted to round coins.
Chinese coins had square hole in center through which string could be passed to tie multiple coins together. This got too heavy for them to carry.
And thus came first credit note. Here’s how.
You have a lot of coins. You want to buy stuff from me but you don’t want to carry the bulky coins when you come for trade. So you deposit the coins in a bank, against which they issue a note to you. You bring that to me and I agree to give you my produce. Why?
Because the credit note assures me that you have real coins that are stored somewhere that you can use to pay me.
So you see credit came before paper money did!
How exactly did paper money start
The credit note was being quietly used in China. Remember, credit note allowed only the original owner of the note to exchange them for gold or coins. So basically, you and I will go back to the “bank” and you will redeem your coins against the note and pay me.
Then Marco Polo landed there. He saw what was happening and was amazed!
The credit was a new concept for him. More than that he was absolutely stunned with what was happening in international trade arena.
The merchants from abroad, countries like India, would carry gold and silver to sell in China. They could only sell these to the emperor. The emperor would issue paper money in exchange. The merchants would use this note to buy produce from China. Plus they were lightweight and easy to carry.
Essentially, the emperor was trading paper for gold and silver. And Marco Polo could understand how this emperor was going to be richer than any emperor in the world!
“Now you have heard the ways and means whereby the Great Kaan may have, and in fact has, more treasure than all the Kings in the World” –The Travels of Marco Polo/Book 2/Chapter 24
It took some centuries for Europe to jump in on the idea of paper money.
The money notes today
Many centuries and blunders later, finally today’s note arrived. The idea travelled from China to Europe to rest of the world. In the process some intelligent beings figured that the credit note being used by owner alone is a huge limitation. It would still mean that real trade was happening in gold and coins.
The depositors of gold and coin also figured that credit note is easier to carry and trade. And thus the “banks” shifted to a “promissory note”. A note that is a promise that the holder is entitled to be paid some value.
And ta da!
You see what is written there (below the amount) : “I promise to pay the bearer the sum of one thousand rupees”. Signed by Governor of RBI.
What you have is a note. A promissory note.
Btw, I used Rs 1000 note on purpose. Nostalgia.
Now, I was double quoting “bank” all this while because a depositor is not a bank. These entities became institutionalised banks when paper money circulation increased and no one wanted to withdraw their gold anymore.
The entities said , “Look, the gold and coins are getting wasted. Plus I have to pay rent for this place”. Allow me to lend this further and I will make sure you profit in the process.
The borrowing and lending is what made them banks!
It is so fascinating to know how things would have started. How humans kept on solving one problem after another and arrived where we are today. Wonder what will become of money in future.
I live without physical currency in hand now. Credit Card and Wallets solve all my needs.
The evolution has brought us till Bitcoin. No physical currency needed! No banks needed too! Haha!
Anyway, next time you look at money, think China!
Also published on Medium.