How Money Began

(Reference: GCE O Level Exam Paper November 2003, Paper-2)

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Picture a large picture large, open space a small group of people suddenly
appear, lay down some food and an axe and some people simple clothing.
Soon another group appear, inspect the goods, take some of them, and
offer others in exchange - some chickens, perhaps some knives and a sack of
corn. What is happening is the very early form of buying and selling, in other
words the process known as 'bartering'.

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In effect, this early system of buying and selling went on for a very long time
effect before money as we know it appeared. Of course, bartering seems
laborious compared to the convenience of coins and notes for buying things.
But often this simple form of trading relied on something that had a
common value for everyone. In many ancient communities this came in the
form of cattle. A warrior's armour could be worth a hundred oxen, or even
human beings, principally those who were employed as servants, could be
valued in terms of cattle. One servant might be priced at four oxen.

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Moreover, cattle were easily movable, and had practical worth; they meant
food or the ability to work the land. In some communities, horses came to
be seen as a form of money, especially in wild, open country where they
represented the only method of travel. Until quite recently, for people living
in the vast, lonely plains of southern Russia, the number and quality of the
horses they owned decided how wealthy they were. Their necessity as a
means of travel gave them all the value that other people came to calculate
later in terms of coins and notes.

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Yet the system of bartering could not last forever. As communities grew and
developed, the greater the variety of goods there was for bartering. So it
became more and more difficult to decide what one thing was worth
compared with another. In a world without money, how do you work out
how many apples you need to get something like a pair of boots or a cloak?
Eventually, a very basic form of money appeared, often things such as
knives, swords or axe-heads , made in a small size. Being fashioned out of
metal, they had a special value, since it required a great deal of labour to
extract metal from the earth.

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However, a currency emerged which would remain popular for a very long
time and over a wide area, and that was the cowrie shell. His shell is a small
oval shape, and home to a small shellfish. The fact that it varies in size from
just over a centimeter to 9 or 10 centimeters made it an ideal type of ‘coin’.
The bigger the cowrie shell, the greater its buying power.

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For hundreds of years, cowrie shells were shipped abroad from one source,
namely the Maldive Islands in the Indian Ocean, to countries in Africa and
the Middle and Far East. Nut the numbers of shells reaching these distant
countries were small, and because they were scarce, their power to
purchase things increased. Cowrie shells were easy to handle and count up
in contrast to the more cumbersome metal implements such as axe-heads
and swords, no matter how small their size. What made a cowrie shells a
unique form of currency was that they defied any sort of imitation, and
imitation was later to threaten the early use of metal coins.

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Inevitably, though, the cowrie shell began to lose its value, as increased
amounts were shipped abroad not only from the Maldives, but elsewhere.
Thousands and tons of cowries were sent to Africa alone and this vast
quantity meant that their value as money was seriously diminished. Yet right
upto the middle of the 20th century the cowrie shell was still used as money
in parts of West and East Africa, and little children would hunt for lost
cowries on market days, hoping to find enough of them to buy a small toy or
something to eat.
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One country was quietly developing a system of metal coinage long before
other ancient communities and that was China. As early as the 12th century
BC the Chinese were making coins. Admittedly they were made of cheap
metals, but the state guaranteed their value, and made sure that the coins
conformed to a recognized shape and design. Each of these coins had a hole
bored in it, so that they could be strung together. Since most of them
carried a low value, extremely large quantities would be required in
everyday trading. The emergence of this new money encouraged an
increased in merchants and traders, who in turn ensured that this use of
coins would continue to flourish.

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There was another form of money, too, which China was the first to
develop. Although silver or gold could be used when large purchases were
involved, these precious metals had to be weighed out in precise amounts,
not counted as coins were. To avoid the elaborate procedure of weighing,
China developed a substitute form of payment – the banknote. These pieces
of paper first appeared in general use in the 9th century A.D. and thereafter
found a permanent place in Chinese money. They were issued under the
authority of the state, and carried a value equal to a specific number of the
metal coins. But it was the guarantee of the state as to the value of these
notes that mattered. In fact, the system proved so successful that such
banknotes have remained in use throughout the Chinese history. Other
countries did not turn to this idea for another six hundred years. When we
hand a banknote across the counter of some shop or at a market stall, it is
worth remembering that the Chinese invented such a convenient form of
money.

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Later on, other countries were to follow the lead of China and produce
metal coins. In Eastern Europe gold and silver were mined in significant
quantities and in the leading cities coins were fashioned from these precious
metals. Their value earned them a widespread reputation as money worth
acquiring in turn their production by the leading cities of Eastern Europe
meant that these cities flourished as the most successful trading centers of
their time.

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So the foundations of our modern money system were laid, first by China
with its simple metal coinage and useful banknotes, and then by the
European cities with their gold and silver coinage. For over two thousand
years, coins made of silver or gold or of bronze – for small sums – became
the means of payment in more than 80 communities. But gradually cheap
imitations would circulate, made of worthless materials and this
undermined the value of the real coins. In addition, people began to chip off
some of the valuable metals of the coins. Governments were forced to call
in all coins, melt them down and then re-issue them. To cover some of the
expenses, less of the precious metals would be included in their production.

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Gradually, coins in circulation lost their value in terms of the metal in them,
and nowadays so-called silver coins are made not from silverbut from some
cheaper copper based material. However, their buying power is determined
by the government authorities, with an official mark stamped on them.
Similarly, modern banknotes have this official guarantee as to their value. It
seems that we have gone down the same road as the early money men of
China. Cheap metal makes up modern coins, as it did in their day, and
banknotes have followed the pattern that appeared early in China.
Reading Comprehension
1. What does the author believe was the major disadvantage of bartering?

2. Explain in your own words, why metal objects acquired a ‘special

3. Summarize the given passage in 100-150 words.

4. Which process is known as bartering?

5. Pick the right synonym for the word ‘laborious’.

6. In open countries, what was considered as the only method of

7. Why bartering couldn’t last forever?

8. Which was the first currency and remain for a long time?
a) Cowrie shell
b) Metal coins
c) Body parts
d) None of the above

9. Why did the cowrie shell lose its value?

10. When did Chinese start using the banknote for the first time?
a) 12th Century
b) 20th Century
c) 9th Century
d) None of the above

(MCQ prepared by Mahrukh Fatima)