Strange Forms of Currency Throughout History

This is Breaking The Dollar, the podcast that dismantles some of the biggest misconceptions about money.

Presented by Gainesville Coins.

Hello and welcome back to Breaking The Dollar. I'm Everett Millman, your host, and this week's episode is going to expand upon something that I touched on briefly in my episode about what makes gold valuable.

I kind of got into some of the history of money and why coins were useful as money and I want to expand on that because I think people will be surprised to find all of the different types of things that functioned as money at different places and times in history.

And it also illustrates some of the basic concepts about what money has to do, what makes something useful as money. It doesn't happen on accident.

Certain items will have a universal value and more or less to different degrees meet these requirements that make it a medium of exchange, like being portable, being able to be durable and saved over time. And so not a lot of things fit this description any better than coins.

That is why coins made out of precious metals became a stable form of money for so long, but it was not a nice, neat linear progression to get there.

Human history is filled with all sorts of different experiments and accidents of different forms of money that we attempted to use.

In a lot of cases it was really, barely a step removed from barter where you're just trying to exchange different items for each other.

You know, my cow for your carpet or rug, it doesn't work very good in practice. It breaks down very quickly, but certain items that are easily divisible and very portable, so think of something like salt or spices, something that can travel over long distances without spoiling and is also useful to people really all over the world from the earliest recorded times in human history.

Basically we have these types of items being used in trade, so whether that was salt or in many cases, spices that were traded along the silk road, it really depended on what part of the world you are in, and whatever commodity was harvested or grown or found there.

This is sort of a commonly known aspect of human history and how civilizations evolved, but in the middle of that development is where we find gold and silver in the form of these big bars called ingots being used in trade thousands and thousands of years ago.

Certain merchants and groups of people figured out that gold and silver were really useful for this purpose.

But as I said, it depended on where you were.

Something that money has to be, and it's kind of paradoxical is it must be scarce. It has to be in short enough supply that people think it is worth something, but it has to be abundant enough that you can have some because money just has to stay in the middle, as a medium of exchange. It just has to represent value.

So that is what makes something like grains of salt or wheat or beads or shells, a useful way of denominating value in trading hands between people to take the place of whatever valuable items they would have had to barter with in the past.

So thousands of years ago at the same time that some places are using gold and silver, other parts of Southeast Asia, Africa, and both of the Americas relied upon cowry shells as a form of currency.

In some places it was the entire shell itself. In some cultures they would break up the shells into little shards so you can sort of think of it as like smaller bits of money, like coins relative to big dollar bills and this worked. A whole economy sprung up around using theseshells.

It reveals one of the principles of money, that it really is worth whatever you believe it is.

Whatever faith you have that it does represent that it's backed up by the value of other things.

In addition to being something that is both abundantly available, although also in some type of limited supply and being very portable, shells are also relatively fungible and that's just a word that means you can exchange one for another that is exactly the same, so two Cheerio's are essentially exactly the same. You can always switch one out for another.

That is a property that not a lot of items meet very well.

Pure gold and silver kind of meet that requirement the best, but you'll see that fungibility becomes an issue with some of these different forms of currency that were used in the Americas.

In the Inca civilization, certain colored feathers were extremely valuable and used as money and were then displayed and traded.

In many cultures, you get beads and necklaces serving the same purpose and that does go hand in hand with using shells because a lot of time the shells or feathers or whatever item that function as a local currency could be made into some type of jewelry or clothing that then made it functional.

You can start to see that ancient cultures were grasping at the idea of what would make good money.

So something that could be fashioned into a status item was a pretty good way of communicating and transmitting wealth when you had nothing already in between.

I think we take for granted that coins and paper bills are just the right idea for money.

As I said, we didn't arrive at that idea in a straight line. It was a very back and forth progression and so what is fascinating to me about the idea of using shells or feathers as money is that this went on in certain parts of the world, contemporaneous with our development of coins and paper money.

At the same time that local currencies were used, you still had an economy built around the local shell currency in parts of Africa or Southeast Asia.

Throughout the 1700s and 1800s, and as far back as medieval times, you have the trade of animal skins, as a viable currency in a lot of frontier places in Russia and Finland and in Canada. It was just sort of like a little representative key chain. And this is what changed hands when people wanted to trade items.

Historians believe that it hearkens back to a time when these types of tools, because they were very youthful and they were in short supply, you had to have a metal Smith to make you a knife or a shovel or ho to use on your farm, that this type of knife and spade money was a natural progression from that barter that it represented to those people something of value by virtue of its shape.

What's also interesting is that independently across the world, this same type of concept was being independently used by different cultures.

It might be a clothing item that was fashioned into a belt or a ring or a string with rings or coin like items on it. In a lot of places it was a stick that you would then string on little rings or items.

And this is why in China for hundreds of years, all coins had a square hole at the center so that you could string it together or put it on a stick or. string that allowed you to quickly count groups of your currency.

So the timeline is not perfect. It overlaps in the early American colonies.

Even though coins and notes are already a thing, they were not widely available. But not only did foreign coins circulate in place of any official British or colonial currencies, you did have colonists resorting to other things like tobacco as a form of currency.

This was rather common and much of this type of trade that we would associate more with the ancient world went on throughout the 1700s and 1800s and in parts of the world well into the 19th and 20th centuries.

And what's cool is that a lot of these practices with different strange forms of currency are still with us, even in our language.

So when you hear the phrase someone was really worth their salt, it's because it used to mean their salary. That's what they got paid in.

So they're worth the money, they're worth what they're getting paid.

When we call the dollar a buck, it's because of buckskin, because again, animal pelts in certain parts of the country function as money in many languages.

The word for money still comes from the Latin word for silver Argent or Argentum,and to see how widespread the cowry shell currency really was, the Chinese character or symbol for money is still derived from the one for cowry shell.

So there are some interesting connections with our past, even with the way we talk about money today.

And so the last point I wanted to make about this is that even though some of these alternative seemingly primitive currencies continued to be used up until relatively recent times, even in the developed countries in the world, we're not set on how our coinage would work even in the middle of the 20th century, in the 1940s and 1950s. Several countries, their Mints were experimenting with odd mixtures of different metals to try and come up with a new standard for money.

It was an exercise in fine tuning some of those properties about different metals that make them useful, that they'll be durable, that they can't be counterfeited, that they won't corrode or be toxic or in some way spoil over time.

So in the United States we experimented with something called goloid, which was an interesting mix of copper, gold and silver all into one alloy to try and be used for coins that really never panned out.

Later on they experimented with plastic cents and glass coins, if you can imagine that! All to try and find a material that could be mass produced and still be functional.

Really, if you extend that idea and think about it today, we do use plastic as money all the time with debit cards or credit cards. In some ways the experiment really is still going on, but it is easy to take for granted that ideas like easily divisible and portable coins or paper money have always existed, they haven't.

And even a few centuries ago, it was not an obvious solution either. It still has always had problems.

Earlier when I discussed, you know, the trade routes like the silk road in ancient times, you have to remember that before we had big civilizations, a lot of people were nomadic. So the type of money you had really did have to be portable and durable and survive across many, many hundreds of miles if not thousands of miles.

The same is true after the Renaissance and when you get into the colonial period where people are sailing all over the world. If something was going to work as money on a global scale, it had to survive the trip across the ocean.

And so now we're going to take our question from the audience, check our mailbag here, and this week's question comes from Craig in Santa Fe, New Mexico, and he asks, why has the price of Bitcoin gone down so much lately?

Well, of course there's going to be volatility and ups and downs with any asset price, especially cryptocurrencies.

But what really happened is that as there was a slight sell off in Bitcoin as the price dipped below $10,000.

It triggered a lot of action on the trading exchanges of people who were long Bitcoin and had to liquidate their positions under normal conditions.

This wouldn't cause such a big deal, but there was reporting that on one of the big exchanges BitMex, there was a great deal of leverage because they allow traders to take up to a hundred X leverage, which is insane.

That means you could be in for $1,000 of your own money, but actually be trading a position that is worth $100,000.

So obviously that exposes you to very big losses if the price goes down. That phenomenon cascaded, and as I said, caused a lot of people who were long and were betting on the Bitcoin price to go up to have to liquidate their position.

And if you're trading on margin and you do not have the money, that's going to cause a lot of accounts to get closed.

So basically that is what exasperated the situation and caused such a steep decline in the Bitcoin price over the past, I would say about past month, and that goes to show why leverage trading is very risky business.

So that's it for today's show. I want to thank everyone out there for listening.

We really appreciate you tuning in and check out next week's episode, where I go over the reasons why the gold price fluctuates up and down throughout the day. Interesting topic. Be sure to check that one out.

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The views and opinions expressed on this show are for informational purposes only and should not be used or construed as professional investment advice.

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Everett Millman

Everett Millman

Managing Editor | Analyst, Commodities and Finance

Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.

In addition to blogging, Everett's work has been featured in Reuters, CNN Business, Bloomberg Radio, TD Ameritrade Network, CoinWeek, and has been referenced by the Washington Post.