A brief history of money and what can you do about it

The debate heats up about cash vs digital currencies like bitcoin, Ethereum or even Central Bank Digital Currency (CBDC). What history can teach you about where are we heading forward?

Living in modern society, one thing that we all encounter going about our life is money. "Money" came in the shape of goods or services that value our ancestors could quickly grasp. For at least 100.000 years, cultures worldwide relayed on senses to perceive and exchange value. But one day, 50 years ago, in 1971 (thanks to one man), it all changed. We moved to a more culturally and socially assumed way of defining what money means beyond the value of tangible goods or services. The question is - what can we learn from history, and what changes are we facing today? What can you do about it?

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Before money 

The word money derives from the Latin word moneta with the meaning "coin". Coin or cash is what we can easily perceive - touch, see, hear, crumble, smell, and taste. Today, it is a number on a screen or possession of a plastic card for many.

For at least 100,000 years, cultures and societies went about their business without the concept of money, cash, or coin as we know them today. At that time, people worldwide adapted commodities as a form of money. Non-monetary societies operated on the gifts and debts principle—the standard practice between closed communities, families and friends. Adversely, strangers or even enemies used to exchange goods and services for other goods or services, the barter-like method.

Only 5000 years ago, or 3000 BC, the first known "coin-like" concept came from Mesopotamia, present-day Iraq, and parts of Iran, Turkey, Syria, and Kuwait. Not precisely a coin, though, but rather a unit of weight - shakel relied on the mass of something like 160 grains of barley. And only around 650 - 600 BC that Lydian people from the First Persian Empire mint coins out of gold or silver, as written about by Herodotus in his Histories.

Steps toward the monetary system

The beginning of money as we know it starts once commodities evolved into a system of representative money. In the ancient empires of Egypt, Babylon, India and China, the temples and palaces often had commodity warehouses that issued certificates of deposit as evidence of a claim upon a portion of the goods stored in the warehouses, a form of "representative money". In over words - the primitive state of today's banks. Do not confuse representative money with the paper money we know today. Representative money often printed on paper represents assets but has little or no value. More like literal paper "stock" certificates, if we may.

Actual paper money did not appear until the 11th century, during the Song dynasty. European explorers like Marco Polo, that scouted ancient China, introduced the concept in Europe during the 13th century. The first concept of a stock market came after The Amsterdam Stock Exchange, established in 1602 by the Dutch East India Company and dealt with printed stocks and bonds. Napoleon issued paper banknotes in the early 1800s. Couple hundred years later, in London, banknotes became widely accepted for convenience and security. With the removal of precious metals from the monetary system, banknotes evolved into pure fiat money. In other words - a currency introduced and accepted by the government.

The end of the gold standard and the beginning of cryptocurrency

By the beginning of the 20th century, almost all countries had adopted the gold standard, a monetary system that tied gold value to paper notes. After World War II, from 1944 to 1971, the Bretton Woods agreement fixed the value of 35 United States dollars to one troy ounce of gold. Other currencies were calibrated with the U.S. dollar at fixed rates. The U.S. promised to redeem dollars with gold transferred to other national banks. Long and behold, 1971 marked what is known as the Nixon Shock; the U.S. government suspended the convertibility of the U.S. dollar to gold. That marks the end of paper-tied-to-gold and the beginning of deconstruction of how we perceive money and, in that sense, wealth itself.

Only a decade later, In 1983, the American cryptographer David Chaum conceived an anonymous cryptographic electronic money called ecash. Twenty-six years have passed by of various countries and institutions working and publishing papers on cryptography. In 2009, the first decentralised cryptocurrency, bitcoin, was created by presumably pseudonymous developer Satoshi Nakamoto.

It has been no more than 50 years that we know different currencies in the form of paper money with an assigned value not linked to anything physical or tangible like gold, unbacked by anything except the governments' ability to convert this "money" into goods via payment. Nevertheless, even the simplified look into the history of money exposes a relatively new concept of cash-but-no-gold, as seen in the grand scene of value exchange from the past 100,000 years. The perception of money evolved through the Middle East and Asia, and only as recent as the 13th century appeared in Europe.

What can you do?

Keep an eye on CBDCs

Keep an open mind and close eye on your government's moves towards digital currencies. Many governments are working on Central Bank Digital Currency (CBDC) as a natural evolution of fiat money. As of May 2022, the Bahamas launched the digital currency in 2017, and Nigeria issued the e-Naira in 2021. However, if you think this is something far away governments are experimenting with (like El Salvador adopting Bitcoin as legal tender). Think twice. Fifteen governments are already in the pilot, including China, Canada, France, and Russia, who successfully moved to the digital ruble during the first weeks of occupation in Ukraine. You can track changes here https://cbdctracker.org/

Learn about investing in different currencies

The foreign exchange market (forex) is where you can trade currencies. If you believe the dollar will drop in the future, you can buy one or more currencies that you think will rise. Forex is also the most significant market globally – larger even than the stock market: It empowers everyone from central banks to retail investors to potentially see profits from currency fluctuations related to the global economy. Historically, only multi-national corporations and well-financed investors were able to trade currencies. However 1973, this market opened, and governments worldwide gradually allowed retail investors to join the trade. Retail investors' volume of forex trades is shallow compared to financial institutions, and companies, even though retail traders constitute a growing market segment. 

Consider gold

Even though gold no longer backs the U.S. dollar (or other worldwide currencies), it still carries importance in today's society. To illustrate this, presently, central banks and other financial organisations, such as the International Monetary Fund, hold almost one-fifth of the world's supply (around 90.5 million ounces (2,814.1 metric tons) of gold at designated depositories) of above-ground gold. You can also buy gold today. You have three options - invest in gold through exchange-traded funds (ETFs), buy stock in gold mines and associated companies, and/or purchase an actual piece of gold called Gold Bullion.

Learn about cryptocurrencies

As of writing, May 2022, markets are in free fall, and bells are ringing loud for recession. However, if you ever consider investing in cryptocurrencies, consider a few steps before betting your money on it. First, try to educate yourself to your best capability on why cryptocurrencies even came into existence and how blockchain technology work. Second, it is a good idea to read white papers on bitcoin and Ethereum. Third, there is no official ETFs you could use to diversify into crypto. But, if you have extra money left after living costs, emergency savings, pension funds, or other investments, you can cut on going out and cost dollar average into one of the cryptocurrencies. For example, if you believe in technology, investing regularly, 50eur will save you a headache trying to time the market and ride the wave of volatility. Bonus, if something sounds too good to be true, 95% of the time it is.