Origin of Coin as a Medium of Exchange (600 BC)
The first official coins were introduced around 600 BC in Lydia, an ancient city in modern-day Turkey, under the rule of King Alyattes. These coins were made from gold and silver and stamped with a royal seal, making them widely accepted and trusted in trade.
Following this, regions like India, Greece, Rome, and China began to mint their own coins for economic exchanges.
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The Beginning of Paper Currency (7th–9th Century AD)
The Tang Dynasty in China initiated the use of paper during the 7th century AD, but it was not currency in the true sense—rather, it functioned as receipts.
Later, in the 9th century, the Song Dynasty converted these paper receipts into actual paper currency, known as "Jiazi", marking the first use of paper money as a substitute for metal coins.
Paper Currency as a Medium of Exchange (13th Century)
During the 13th century, under Mongol Emperor Kublai Khan, gold coins were the standard medium of exchange.
Kublai Khan devised a plan to centralize wealth: he asked the public to deposit their gold coins in the royal treasury in return for receipts (paper notes) of equal value.
These receipts were easier to carry and use in trade, leading to wide public adoption.
Over time, people deposited their coins once and never returned to reclaim them. Seeing this, Kublai Khan began lending those deposited coins to others with interest.
This marked the birth of the banking system, where deposits were stored, and interest-based loans were issued.
To reinforce this system, he banned the use of gold coins altogether and enforced paper receipts as the only legal medium of exchange, using the power of the state.