History of money

A number of commodity money systems were amongst the earliest forms of money to emerge. For example

the shekel referred to a specific volume of barley in ancient Babylon
iron sticks were used in Argos, before Pheidon's reforms.
cowries were used as a money in ancient China and throughout the South Pacific.
salt was used as a currency in pre-coinage societies in Europe.
ox-shaped ingots of copper seem to have functioned as a currency in the Bronze Age eastern Mediterranean.
state certified weights of gold and silver have functioned as currency since the reign of Croesus of Lydia, if not before.
rum-currency operated in the early European settlement of Sydney cove in Australia.
cash crops such as tobacco, rice, wheat, indigo, and maize were used as money in colonial Virginia.

Under a commodity money system, the objects used as money have intrinsic value, i.e., they have value beyond their use as money. For example, gold coins retain value because of gold's useful physical properties besides its value due to monetary usage, whereas paper notes are only worth as much as the monetary value assigned to them. Other forms of commodity money included the use of Commodity money is usually adopted to simplify transactions in a barter economy, and so it functions first as a medium of exchange. It quickly begins functioning as a store of value[citation needed], since holders of perishable goods can easily convert them into durable money.

The bulkiness and limited transportability of some forms of commodity money led to the invention of symbolic substitutes for commodity money. Goldsmiths' receipts became an accepted money-substitute for gold in 17th Century England. The wealthy deposited their gold with the goldsmiths of London for safekeeping and were issued and transferable receipts for a certain value of gold which quickly gained acceptance as a form of currency backed by gold. But it was not long before the goldsmiths discovered that they could also issue identical receipts to clients who applied to them for loans. These additional receipts were not backed by additional stores of gold, but they were indistinguishable from the other receipts and readily accepted by the public as equivalent. Through most of the 19th Century commercial banks in Europe and North America issued their own banknotes based on the same principle of partial backing.

Many people are under the misimpression that the US dollar and other national currencies were fully convertible into gold prior to abolition of the gold standard in the early 1970s. But through most of the 19th century, gold or silver backing for national currencies was never more than partial and only intended to facilitate international transactions.

From there is was only one further step to create true Fiat money, currency that has negligible inherent value and is not backed by any commodity. A central authority (government) creates a new money object by issuing paper currency or creating new bank deposits. The widespread acceptance of fiat money is most frequently enhanced by the central authority mandating the money's acceptance as legal tender under penalty of law and demanding this money in payment of taxes or tribute. By the early 1970s almost all countries had abandoned the gold standard and converted their national currencies to pure fiat money.
source: wikipedia.org GNU Free Documentation License

History of money
Characteristics of money
Desirable features
Modern forms
Credit
Money Creation
Problems with precious metals as money
Problems with paper as money
Basis for value of money
Economics
Private currencies
The Future of Money
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