Trading, also known as bartering, dates back to the beginning of time. Initially, money in the form of coins and paper did not exist. When a person needed or wanted something, they would trade something they owned or a service they knew how to do to get it. Sometimes people would trade gold or silver to obtain what they needed. For example, gold or silver might have been traded for livestock. Different objects were valuable to different people.
Bartering became cumbersome, especially for the collection of taxes for governments.
Governments also needed an easy way to exchange something of value to obtain goods and services from other governments. Bartering went from commodities (e.g. grains, livestock, etc.) to weapons and tools to coins. Merchants in Lydia were the first to come up with the idea of creating coins in exchange for goods and services. King Alyattes of Lydia began minting coins in 600 B.C. The Chinese, however, were the first to create paper money. As some people began to amass wealth, they needed a safe place to keep their money.
Initially, temples provided a place for wealthy people to store their money. Temples were in the center of the city and the place where people conducted business. It made sense at the time for people to place their money with the temple for safe keeping as it was occupied all the time and had the capacity to hold people’s money because they were large structures.
Wealthy merchants learned to lend money to people in exchange for a fee or interest. Temples gave out loans to people, too. The idea of holding people’s money in accounts and giving loans to people in need expanded and Rome soon created the first bank - a structure separate from the temples that conducted financial business. Banks were initially owned by governments. Over time, most financial business moved from the temples to individual banks.
Jumping forward in time, Adam Smith came along with the idea of a self-regulated economy in 1776. His idea led to private banks in the United States; banks that were not controlled by a church or government entity. His idea also led to cooperative financial institutions. Cooperatives are associations put together by a group of people. There are many types of cooperatives such as commodities, utilities (electricity), and shared services to name a few.
The history of money looked something like this: bartering —> coins —> paper money —> checks —> plastic cards —> electronic. When a person thinks of cash, they think of paper money and coins. Cash in the world of finance, banking, and accounting also includes money in checking and savings accounts, marketable securities, and government bonds. Checks are also considered a form of cash. All of these items are considered to be cash because they can be turned into cash quickly or within a year. In business, a company’s current assets are considered a form of cash. Today, many people do not use paper money or coins and use a debit card instead. It will be interesting to watch and see how money will be exchanged in the future.