Historically, the first kind of money people used was commodity money. Various objects of quite different value were used as barter to obtain other goods. People used animals, food and goods as a payment. That was called bartering, which exactly describes a direct trade of goods and services. This system of trading spread across the world, and it still survives today in some parts of the globe.
The first coins – nothing but simple metal pieces – appeared in the 7th century. The first gold, silver and bronze coins were minted in the region of present-day Turkey about 2,700 years ago. At the time, the value of the coins was equal to the material used to make them.
Then in 600 B.C. the first official currency was minted. The coins were made from electrum, a mixture of silver and gold that occurs naturally, and the coins were stamped with pictures that acted as denominations.
Paper money consists of banknotes, with the value of each note printed on it. It was first invented in China, where it made its appearance about 1,000 years ago. Marco Polo became familiar with the fascinating world of paper money when he visited China in 1200 AD. Banks started using paper banknotes for depositors and borrowers to carry around in place of metal coins.
In those early days, a number of banks printed and issued banknotes. To guarantee the value of the banknotes, the issuing bank had to keep gold reserves of equal value in its vaults. Today, that is no longer the case. Only central banks are allowed to print and issue money now.
Today both banknotes and coins continue to change and develop. Even though there are plenty of new ways of paying, for instance with credit cards and electronic transactions, cash is still an important payment form.