As coin collectors well know, money has evolved from a utilitarian product to a true art form. Coins are now often minted not merely for use as legal tender, but as commemorative pieces crafted with care and beauty. This progression has long fascinated historians and numismatists alike.
As early as 100,000 years ago, before the adoption of coins or paper money, ancient civilizations used “proto-money” for trade. These early forms of money were usually beads, shells or other somewhat scarce items that were easily portable yet difficult to counterfeit. Also known as commodity money, proto-money was used for less frequent exchanges like paying bride prices or dividing property after a death.
By roughly 5300 BCE, the Sumerians had built a large-scale economy. Later, the Code of Hammurabi (1760 BCE) built on Sumerian tradition, establishing regulations on interest rates, a fee schedule for law violations, and compensation rates for infractions of civil law.
The Emergence of Precious Metals
Although precious metals had long been used as commodity money, the Egyptians were the first to systematize its use in coins. Around 4000 BCE, they set standards for the weight and purity of gold coins. Other countries soon adopted the practice. Precious metals gained their value because they were scarce, but easily transported.
During the 6th century BCE, the scarcity of silver helped elevate Greece to a local superpower. They adopted silver coinage, and controlled the local supply. This disparity in resources allowed them to augment their naval fleets, stimulating trade in the region.
As time wore on, gold became more popular worldwide, because it was less widely available, but was dense and easily stored. Eventually the Egyptians’ idea of standardization resulted in standardized coins that were the same weight and composition. This system has lasted to modern times, although it has been supplemented.
The Introduction of Paper Money
As early as 600, China produced paper money, but it was used only locally. It was not until much later, after the establishment of banks, that paper money gained widespread use.
As citizens amassed precious metals, they looked to the banks to store them for safekeeping. Banks would issue receipts for the amount of metal deposited. People began trading these receipts, since they could be redeemed for gold or silver at the bank. Thus the paper represented a real value.
At first, these papers were always backed by a physical equivalent quantity of precious metal, usually gold. Hence, the “gold standard” emerged. Over time, however, banks began issuing receipts that exceeded the value of the precious metal they had on hand. Furthermore, in times of crisis, when the precious metal was needed to fund things like war, it was impossible for banks to honor citizens’ requests for precious metals. Gradually most countries, including the US in 1971, abandoned the gold standard. This shift sparked a rise in fiat currency.
Fiat currency is money that is not backed by reserves of a commodity, such as gold or silver. Today almost all countries have switched to fiat currency, meaning that the value of paper money is entirely representative. Furthermore, countries using fiat currency generally do not use precious metals to mint coins. Hence, collectors value commemorative coins and bullion coins, because they maintain intrinsic value not only for their beauty as artistic pieces, but also for their elemental purity.
Read the full History of Money.
This information is provided for general reference purposes and does not constitute professional advice. For detailed coin collecting or investing information, please consult with a professional expert.