Reading Time: 6 minutes
Money was a simple sack of grains in olden times when barter was used. As the economies grew larger and more complex, the need arose for something, which could provide exact value to goods and services, could be stored without any risk of perishing, could be transported easily, and could be recognised easily and accepted by the masses, while at the same time preserving its value. To perform all these functions, the currency arose as a matter of necessity, says Tarun, in the weekly column. A Different Truths exclusive.
Money has a history, and has seen great evolution through that history. And it continues to evolve even today. Let’s talk a bit about it.
Money is a medium of exchange of goods and services. Today, money is commonly understood to mean currency. Yes, the currency is the biggest denominator of money. But money is a much wider term. It can include promissory notes, letter of credit card, credit or debit cards, gold, precious stones, or any of the very modern digital systems. In other words, any medium which can be used to exchange goods and services, is money.
The first currency was a bronze replica of weapons, introduced by the Chinese in 1180 BC. Lydia in Turkey introduced gold and silver alloy coins around 600 BC, while Indians in the Gangetic plains used punched metal as coins. Around the same time, the Chinese were already making paper currencies, with a clear warning “All counterfeiters will be decapitated”!!
The first known history of rules of debt, interest and private property came around 1800 BC, through Babylonians and Hammurabi.
Until the 16th century AD, the currency worked well, as new conquests and colonies allowed Europeans to get more and more gold and silver to issue new coins. However, problems began to arise, as the distance between colonies and the masters made journeys, and hence, trade too long. A shortage of currency
As the industrial revolution gathered pace, the huge need of finance gave rise to innovative financing solutions, the most notable being the invention of stock markets. The 20th century saw the massive upheavals, in terms of financial and human tragedies, and growth. While we saw two world wars, atomic bombs, economic depressions, famines, we also saw colonies gain independence, man putting a foot on the moon, starting of Olympics, scientific innovations, wiping off of many diseases, food self-sufficiency, and firming of democracies worldwide.
And in currency, the gold and silver peg to currencies was removed after attempts to retain them. Thus, the central banks got the power to print unlimited currencies, and create massive debts out of nowhere. This unlimited printing fastened the loss of purchasing power of money. This also made central banks do many experiments to meet their twin objectives of control of inflation and stimulation of economic growth.
Since the negative real interest rates are the new trend, the central banks would do all to enforce them. The most effective way to do this is to force people to do more transactions through the banking channels. Cash is money which is outside the banking channel, and hence makes transmission of monetary policy difficult. Similar is the case with gold. Both cash and gold have the power to jeopardise the central bank and government policy worldwide to enforce negative interest rates. Hence, there is a push worldwide to enforce less use of cash, and promote digital money.
This policy was first promoted by the USA in 1970s, when, their economy went through a really rough
The Scandinavian countries are the most advanced countries in the world in terms of cashless payment. So much so, that Sweden is set to become the first cashless country in the world. In UK one in every seventh person claims to be completely cashless. Similar attempts are being in India, to make people go more and more digital.
There is one side effect of digitisation. The banks gain a source of income, through increased usage charges, and also get remonetised in the era of bad loans. So banks stand to gain through digitisation.
Probably, as a result of this push, another trend in digital money is visible – cryptocurrency. The bitcoin is the brightest example of that, although there are others. A cryptocurrency fulfills the needs of people to be away from the prying eyes of the government on all of their expenditures. A cryptocurrency is digital money used as a medium of exchange, and is primarily a decentralised system. This is a parallel system to the one guaranteed by central bank of a country.
As we have seen, money is on the verge of increasing digitisation, whether by central banks, or through decentralised systems. What does this evolution entail for a common man?
Sooner or later, the interest rates the world over will tend towards zero. The negative interest rates are a sort of unofficial, creeping tax on the general public. The move towards digitisatio
So, will digitisation be good or bad? Due to digitisation, the world will see greater productivity, and more control of the government on general finances of public, the general public will also feel the heat of digitisation, as fixed incomes on bank deposits become things of the past. In the next article, I shall write about the impact of digitisation on the way the world buys and sells goods and services.
©Tarun Gupta
Photos from the Internet
#Economy #Business #AncientMoney #BronzeMoney #Digitalisation #ProsAndConsOfDigitalisation #Productivity #GoodsAndServices #PaperMoney #Cryptocurrency #GoldAndSilver #Currency #BarefootEconomist #DifferentTruths