Finance through the ages

“A gift in expectation of a return gift is a barter.” Amongst the various distinctive behaviours of humans amongst other living species is the globalised uniform exchange. What makes the paper pieces in our pockets, the bits and bytes residing on our digital wallets, so unique? How did all of this come into being, and how exactly does it function in today’s age?

Money as an ideology may have cropped up around 3-4000 years ago. According to the Greek philosopher Aristotle, humans living in more miniature delocalised packs often practised the barter system. In simple words, it was exchanging goods according to one’s needs. A farmer may barter one sack of wheat for clothes from a weaver. This method was indeed helpful but posed quite a few challenges - for one, what if the weaver needs shoes instead of wheat? Bringing in an intermediate would further complicate things.

As cities started to emerge, the predecessor of the modern-day currencies began to appear. For instance, farmers in Mesopotamia (3000 B.C.) would often deposit their produce at temples and receive a clay-based receipt. To further trade with foreign traders, region independent commodities had to be set up for fluent business. Hence gold, silver and copper replaced the clay tablets. Ideas of debt had been prevalent since older times, but slowly laws started to be created regarding such issues. The “Code of Hammurabi” (1760 B.C.) in Babylonia was once such law defining debt interests, the penalty for delay in submissions etc.

Around 1000 B.C.E, coins were being produced independently in different nations. The stamped Aegean coins punched Indian coins, and the Chinese coins with holes in the centre marked the beginning of a new era. In 800 A.D., Charlemagne issued the silver penny as the standard coin. It remained the only denomination of coin throughout western Europe. Now the coins too presented a challenge for the authorities: debasement. Independent minting of coins caused scattered contents in a coins’ metal content. A coin minted in Barcelona may have had lower silver content than one minted in London.

The earliest recorded banknotes from the Song dynasty, known as “Jiaozi”, gave the government an advantage of monopoly in cash flow. Meanwhile, the “rupee”, tracing its history to the 3rd century B.C.E’s Mauryan “rupyarupa” was introduced by Sher Shah Suri. The idea of paper money spread to the west as travellers like Marco Polo visited the south-east Asian countries. With the expansion of European trade, paper bills became a prevalent mode of exchange. In middle eastern regions, monetary systems were established with a currency known as the “dinar”.

A system of tallies was practised for centuries in Europe. Introduced by the English monarchy, it guaranteed the holder a certain amount of value for gold or some other commodity. Such currencies are classified as forms of “representative money” as their values are supported by gold, silver etc. In 1971, US President Richard Nixon announced the US Dollar to be inconvertible to gold. The incident, famously known as the “Nixon shock”, made all national currencies effectively to be free-floating currencies. All of the money is now hence dominated by virtual credits.

With improvements in technology, payments card appeared around mid 20th century. These cards (debit and credit) are exempt from state usury laws and charge any interest rate they deem fit. Another significant change was the transfer from paper money to digital currency. Denominations started to be stored in bank databases. It allowed faster and more flexible transactions for everyone. Internet-based peer to peer and person to merchant transactions like the UPI by NPCI India take this a step further by allowing transactions with a single tap by the user.

The latest player in this long list of evolving exchanges comes through the advent of “blockchain” technology. A transparent yet secure digital ledger that records transactions have opened the gateway for a plethora of cryptocurrencies and non-fungible tokens as a method of monetary exchange. Throughout millennia of human history, a balanced and functioning exchange has been a sign of a healthy and thriving economy. We have constantly improved from methods that grew slow and redundant with ever-increasing economies. We must know how far ahead we have come, what all we have achieved as a species, and strive for the better and sustainable functioning of our entire race.

We’ll be back soon with another article. Till then, stay safe!

Views expressed are personal. All errors are our own.