Money as a Unit of Exchange and Its History


Trade is a global activity that takes place in every part of the world. To facilitate it, humans have found ways and means to find a common ground for the exchange of value. In this regard, money came into being. Money has taken different forms over the last several years and its material form has taken different turns. In the olden days, barter trade was the main means of exchange and the way it worked was quite simple. It was based on mutual advantage whereby an individual would exchange his or her goods or even services for other goods and services.

It meant that goods and services where just the way money is being used today. In the modern world, the practice still exists as organizations and governments prefer the use of barter trade for some trades and exchanges. However, the introduction of money to the human system has changed every aspect of our lives and this has brought about very significant and notable changes in human existence. The money came into existence to replace barter trade and it has over since taken over.

Nonetheless, it is imperative to understand that money in itself has no form. It can be anything so long as it has been given the value of the exchange. Money can take any form including a coin, a shell, or even a piece of paper which is the current shape of most currencies of the world. All over the world, peoples have found metal coins and paper to be the best materials to create money from. In this regard, money cannot be accorded value based on its physical texture, rather from its ability to function as a medium of exchange.


Money is basically a unit of exchange and a measure of wealth that allows individuals to trade their goods and services. One of the features that make money very important and valuable is the fact that it is acceptable to all and you know how much value it carries hence making trade easier. It is the most acceptable form of payment. Evidently, there has been a time when the world existed without money as aforementioned.

However, people found ways and means to make trade work all the same. Money was largely acceptable among most traders because it made the business run faster. In barter trade, one had to look for someone in need of the product he or she had and this would sometime take time. For instance, someone with a bag of maize had to wait until another person who needed maize showed up in the market. In addition, apart from just someone who needed your maize, you had to look for someone who needed your product and he or she had something you needed in return.

This would take long hence making trade a time-consuming affair. Money brought all this trouble to rest by introducing a common value of the exchange. The creation of real money was first done in China with their bronze coins. However, the first official coin was made by the king of Lydia ( which is currently Western Turkey). The first coins were made of a mixture of gold and silver and they were stamped with images which were the main denominations. One of the significant advantages of the introduction of coin currencies, especially to Lydia’s economy, was that it made it easier for a country to trade both locally and externally with other surrounding countries.

The Chinese were the pioneers in the coin development and also in the paper currency. They were the first to move from the use of coin currency to paper one. At this time, the Europeans were still using coins made of precious metals. The most notable difference in the operation of money in the current system and the previous system is that in those days the paper money was issued by banks. The banks were solely responsible for issuing money and printing more currencies. In modern financial systems, money is a full function of the government.

Paper currency issued by the European government was first introduced in North America. The colonial government felt that the delays in shipments were taking too long and the operations were being limited by the use of barter trade. In some instances, playing cards signed by the governor were used by the military as money. When the Europeans adopted the use of paper money, the international trade increased by a great margin, and all the other countries around decided to follow the same path.

At the time, banks and the elite started trading in currencies buying currencies from other nations, and eventually, the market was created. Money solved most of the problems that were experienced during the barter trade period. For instance, the coincidence of wants was eliminated completely by creating a common value through currencies. This also heightened currency wars which can be seen in the current financial markets. As the currency development continued, countries continued to compete by making it difficult for competitors to accumulate their currencies.

This was achieved through making goods from the competitors’ side very expensive such that locals would not afford to purchase hence the local currency will not be sold outside the country. Money was also favored because it settled other problems such as the issue of goods going bad. Money developed bringing into paly the existence of other ranges such as the trade bills of exchange. As the European trade expanded, the market grew and the exchange of goods and services increased significantly.

As a result, there was an arising need for credit facilities to aid business. This where the trade bills of exchange came in to provide traders with means and ways of making trade an easy process. Trade bills of exchange were away or committing to make a payment to alter the date and obtain goods in credit. This was very crucial for the expansion of trade and especially foreign trade. To make a successful trade bill of exchange, however, one required a credible guarantor who would act as collateral or a trustee. Another function of the bill of exchange was as a means of transporting money.

At the time, there were no automated teller machines to use therefore for you to make a purchase you needed to have the actual cash with you physically. This was becoming very dangerous with the rising insecurity in the region. Therefore, to mitigate this problem, the bills would be used to redeem one’s money after they have deposited in a bank. The process was simple, you simply deposit some amount in the bank and get the bill. Thereafter you can use the bill in a different bank to redeem your money and use it in a different location without having to carry it around with you hence risking losing it.

After years of using the bill of exchange, another creative way of using money was introduced by the English monarch. As time went by, it was gradually becoming very expensive to create money from paper. Paper was becoming costly to produce and the commodity was even becoming very scarce. As a result, the authorities came up with a remedy for this problem which resulted in the use of a tally stick. However, tally sticks were used to denote payment of taxes or even promise to pay taxes at a later date.

Mostly, this form of money function was used by the treasury and the tax collecting agencies. Since the tallies presented taxes to be paid at a later date, the treasury figured it could use the tally sticks as receipts to show taxes to be collected in the future. In due time, the tallies were introduced as mediums of exchange but they were limited to specific business transactions. This is how the financial systems began to take shape and well cut out a framework of money structures that began to build up.

Soon enough, the banking industry began to take shape and the financial markets came into being. The banking system has developed and it has increased the use of money in many diverse dimensions. In the banking industry, money is used in different ways, either as credit, loans, and deposits among other functions. In addition, the financial markets have brought out new functions of money where money can be used to trade among themselves. Globally, money has become a commodity that traders use to trade. Currencies from different countries have different values based on local currencies.

The difference is brought out by the difference in the difference in export values. The rule of demand and supply applies to different currencies against the local currency. The use of money has assumed different forms ever since the world shifted from barter trade to money. The introduction of bonds, equities, and shares among other forms of money products have come up. In this means, money has not only kept the characteristic of being a store of value but also has to turn out to be a commodity that can be traded with.


The growth and development of money, therefore, is of the most phenomenon and prolific historic events that the world has experienced. Its development and inception to the human race can only be compared to the development of the wheel. Therefore, money can only be crowned as one of the greatest inventions of the has assumed too much power that it affects every aspect of the human race. Nothing can be done in the current world without the use of money.

The use of money has given other countries whose financial power is greater the authority to rule over other countries. Money has brought power to nations and individuals because of its ability to purchase and accumulate wealth. Money simply gives the ability to anyone who poses it to achieve anything and this kind of power cannot be given by anything else other than money.

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