Throughout history a many variation of things have been money. Before the invention things like livestock, rocks, shells, beads and metals like gold and silver were all forms of money. In fact, in ancient time’s people physical exchanged goods directly for other physical goods. For example, if I have fish but needed coconuts and in turn you had coconuts but needed fish, then there would be a mutual agreement between us and a transaction could be made. This way of carrying out exchange was known as the barter system.
The barter system however, brought with it some challenges such as double co-incidence of wants. What if we both needed coconuts? Also, there was no common measure of value and no medium to measure the value of goods so who decides if your coconuts are actually more valuable than my fish?
Commodity money was then created to address this concern. A commodity is a basic item which can be used by almost, if not, everyone. Things like seeds, tobacco, tea, salt and even cattle were considered commodities however, carrying bags of these items over a period of time proved to be extremely difficult… especially trying to carry cattle! There were three main functions to money in these days: money must be a medium of exchange, a unit of account and, a store of value. Although these commodities were considered to be mediums of exchange it was difficult to consider them units of account and given that these commodities were also perishable items they could never truly be considered to be a store of value either.
Then came the introduction of coins and paper money. However, according to Wikipedia ‘due to the complexities of ancient history and because of the fact that the true origins of economic systems actually precedes written history, it is impossible to trace the true origin of the invention of money’. That-said, metal objects were introduced as money because metal was readily available, appeared easy to work with and, was recyclable. Countries around the world were minting their own series of coins with specific values making it easier to compare the cost of various items. Some of the earliest known paper money dates back to ancient China, where the issuing of paper money became common from about AD 960 onward.
Paper money began, what we would call in today’s generation, trending. Nations around the world today all use paper money. Through the evolution of paper money has come a longer list of functions from the previous three. Money must continue to be a medium of exchange and a unit of account however, it must also be portable, durable, divisible, and fungible, which means the dollar in your pocket is worth the same value as the dollar in my pocket. Money has always maintained that it is a store of value however, this is where things begin to turn a bit grey.
Consider that $100 US dollars from just a decade or two ago purchased a lot more goods and services than it would today. The same is true for the euro, the pound, and the yuan. All around the world the money of many nations are suffering what is known as devaluation meaning year after year our money is buying less and less. How then can we maintain that paper money is a store of value?
People all over the world today seem to be working harder for money that is continuously buying less. So, just like the barter system could not be maintained as a viable way of trade, the current system we use on a global scale has also become a broken one. In all parts of the world we have one major inherent problem and that is that our money does not maintain its value.