We all use money every day. It is essential because if we want to buy some food, clothes or services we have to pay money for them. Money is recognized as banknotes and coins. However, many years ago people couldn’t just go to the shop and buy what they wanted. They had to exchange some merchandise or services in order to receive other goods or services. This process is called barter trade. It was a really difficult procedure – the barter often depends on a coincidence of wants. Giving an illustration, the seller of grain has to find a buyer who wants to buy grain and who also could offer something the seller wants to buy. The solution is to trade the wheat indirectly through a third, “intermediate” commodity. An intermediate commodity has to be imperishable and attractive in demand. For example, it could be cattle, salt, shells, wine and so on. Intermediate commodities had their disadvantages; for example cattle, fur and precious stones couldn’t be cut into smaller pieces and it was uncomfortable to keep and transport.

Due to the disadvantages of intermediate commodities, people had to invent a simpler way to continue trading. This is where monetary or specie commodities come in. At first, specie was in the shape of metal bars, wires, rings or powder. This money was uncomfortable because it was necessary to weigh and to hallmark it. Soon, the weight and hallmark of specie were embossed on the money directly.

The earliest known coins in the western world came from Lydia in about 650 B.C. They were made of electrum, a natural alloy of gold and silver found locally. Greek cities, The Great Persian Empire and the Roman Empire quickly adopted the new useful technique of metal currency. By the end of the 6th century, coinage was common throughout the regions. However, coins also had many disadvantages. For instance, coins quickly show wear and they usually have small value. This makes it difficult to count lavish sums of coins. Because of these reasons, people invented paper money.

At first, paper money was used in China in about 650 A.D. In Europe, paper money was first produced in the Netherlands in the 16th century and in the USA in the 17th century. Interestingly, paper money doesn’t have any value in and of itself. It is worthless and essentially just symbolic. In other words, paper money is just a note. It has a purchasing power because the government announces it as money and citizens accept it universally. Nowadays, we often don’t see real money (banknotes and coins) because we use credit cards and debit cards exclusively. Our money is placed into electronic space and it circulates just because of our imagination.