Why was paper money invented

History of Money: How Money Came into the World

Bills, coins, bank cards: shopping is really easy these days. The business of our ancestors was much more complicated: They paid laboriously with shells, stones or precious metals. Read about the history of money and the millennia-long search for the perfect money

Who invented money?

The Christie’s auction house in New York on November 15, 2017. The super-rich from all over the world are bidding on a painting by Leonardo da Vinci called "Salvator Mundi". Suddenly a murmur goes through the hall: A stranger has offered a fabulous 400 million US dollars over the phone!

"First, second, third," shouts the auctioneer. Then he hits his desk with a wooden mallet and gives the stranger the bid. With fees, he later pays more than 450 million US dollars for the oil painting, which is the equivalent of around 365 million euros. "Salvator Mundi" is the most expensive work of art in the world to date!

Well, not just art, but (almost) everything has its price. A bar of chocolate? About one euro. A paperback? Around ten euros. A sports car from Porsche? From 53,000 euros. National soccer player Leroy Sané? Around 75 million euros. The formula is simple: if you want to buy something, you need money and get a good or a service in return.

For our ancestors, this was more complicated thousands of years ago. If they wanted something, they traded it. That could be quite a chore at times. Imagine, for example, a blacksmith who needed fabrics for new clothes and offered the weaver his horseshoes for it - but who didn't need them at all. Then the blacksmith had a problem. He might have to travel many miles before he found another weaver to get involved in the trade.

Numbers with teeth

To make this easier, people invented a medium of exchange that all buyers and sellers accepted: money. Now the blacksmith could exchange his horseshoes for money and the money for cloth. However, people did not yet use coins or banknotes.

More than 20,000 years ago, our ancestors in Western Europe probably paid with small stone axes. The inhabitants of the Fiji Islands used the teeth of sperm whales, the people on the South Pacific island of Yap used stone disks several meters high and weighing tons as money. In ancient Egypt, payment was made with grain, in North America with belts made from mussels and shells of sea snails, called “wampums”.

Around 4,000 years ago, cowrie money came up in parts of Africa and India: Anyone who owned a large number of cowrie shells was rich. In some regions of Europe and the Middle East, people ended up paying with gold and silver. Because the valuable precious metal pieces came in different sizes, you could buy expensive as well as cheap goods with them.

Good business

Around 2,700 years ago, the people in Lydia, in the west of what is now Turkey, came up with an idea: They flattened nuggets of gold and stamped them with the stamp of their king: a kind of assurance that the precious metal is genuine. These gold discs are considered to be the first coins in the world. The idea caught on, a few centuries later people throughout the Mediterranean were paying with coins. Buying and selling just got so much easier.

But the coinage also had a disadvantage. The traders constantly had to carry heavy sacks of money when they wanted to do business. From the 10th century onwards, merchants in China preferred to hand over their coins to the government. In return they received a paper receipt with which they paid for goods: banknotes! It took another 600 years for paper money to become known in Europe.

From bank note to card

Banknotes have many advantages: They weigh little, are relatively easy to produce and give the notes a different value. However, they only work because people accept them as a mere medium of exchange. In contrast to a gold coin, for example, a banknote has no value in itself - it is just paper.

In the course of history, states sometimes took advantage of this to pay their debts, including Germany after the end of the First World War. Because the victorious states demanded high compensation payments from the defeated Germany at the time, the Reichsbank simply printed more and more banknotes. But the more money went into circulation even though the supply of goods and services remained the same, the higher the prices. There was a great infaltion. In the autumn of 1923 an egg cost 320 billion marks! Money had become almost worthless.

Only when one trillion marks could be exchanged for one Rentenmark in November 1923 did the great inflation end. However, many Germans were impoverished because they had lost their savings.

In the European Union, for example, the European Central Bank watches over the issue of cash so that something like this does not happen again today. That means: The countries of the European Monetary Union are not allowed to simply print euro bills as they please. This is only possible with the permission of the central bank.

However, many people are less and less likely to carry around a thick wallet full of coins and bills. When shopping or at the gas station, we have long paid with a bank card that contains a small chip on which the account information and the cardholder's PIN are stored. When making a purchase, the amount is simply deducted from the account. Less than ten percent of all euros now exist as cash. The rest is nothing more than bank accounts - money in electronic form.

Money at the click of a mouse

In the future, coins and banknotes could completely disappear from our everyday lives - thanks to so-called crypto currencies. These are means of payment that only exist in computers. They are not minted or printed, issued and controlled by central banks or states, but "calculated" by computer networks according to complicated rules.

Bitcoins are currently the most popular cryptocurrency. A few clicks of the mouse are enough to pay with them. You don't need banks and savings banks for this. So far, only a few online retailers and shops accept cryptocurrencies. But some believe that at some point we will pay for everything with Bitcoins and Co.: cinema tickets, clothes - and even incredibly expensive works of art.