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Paper Currency in Europe (17th Century)

In the 17th century, Stockholm Banco in Sweden printed the first official paper money in Europe.
Other countries soon followed.
While gold coins were still in circulation, the need for paper notes in banking and lending led to the establishment of banks.
However, these early banks often collapsed due to overprinting—issuing more paper notes than the gold they held.

The Revolution of Fiat Currency (18th–20th Century)

In the 18th century, the world operated under the Gold Standard, meaning all currencies were backed by physical gold, ensuring stability and controlled inflation.
However, in the 20th century, especially in 1971, U.S. President Richard Nixon officially abolished the Gold Standard, and the world shifted to Fiat Currency—money not backed by any physical asset, only by government decree.
Now, governments print money at will, which leads to inflation and currency devaluation.
Unlike the Gold Standard era, modern governments can manipulate interest rates and print unlimited money, which often disrupts economic balance.

The Emergence of Digital Money (21st Century)

On October 31, 2009, a mysterious individual (or group) using the name Satoshi Nakamoto introduced a revolutionary concept via a 9-page whitepaper: a decentralized digital currency named Bitcoin.
Since then, thousands of cryptocurrencies have emerged.
As time progresses, digital money is increasingly being adopted as a new form of money.
Interestingly, every 100 years, there's a transformation in the dominant form of money, and we are currently witnessing the digital revolution in finance.

Summary: Forms of Money Through Time

Era Form of Money

600 BC Metal Coins (Gold/Silver)
7th–13th Century Paper Receipts → Paper Currency
17th–19th Century Paper + Gold Standard
20th Century Fiat Currency
21st Century Digital Currency (Cryptocurrency)
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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.
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What is the Barter System?

The barter system is a method of exchanging goods where people trade items without using any currency.

The Journey: From an Unorganized to an Organized Barter System

Historical evidence from before 6000 BC shows that the barter system was highly unorganized and came with several important problems, such as:

1. Perishable vs. Non-Perishable Exchange (Coincidence of Durability)

For example, Ali has milk, and Noman has a goat. They both want to trade. Ali wants the goat, and Noman agrees to accept milk in return.
But there's a problem — the goat can survive without getting spoiled for a long time, whereas the milk will go bad quickly.

This issue is called the “Coincidence of perishables vs. non-perishables.”

2. Location Problem (Coincidence of Location)

Suppose Noman and Adil want to exchange houses.
Noman agrees to shift to Adil’s location, but Adil does not like the location of Noman’s house, so the exchange cannot take place.

This issue is known as the “Coincidence of Location.”

3. Mismatch in Needs (Coincidence of Wants)

Let’s say Ali has wheat and Noman has rice.
Ali wants to trade wheat for rice, but Noman doesn’t want wheat — he needs milk instead.

This is called the “Coincidence of Wants”, a major barrier in barter trade.

Human Innovation and Economic Progress

Despite these issues, human beings have always found solutions over time. They tackled the difficulties and improved trade and economy step by step.

Organized Barter in Ancient Civilizations – 3000 BC

By 3000 BC, civilizations like the Indus Valley, Egypt, and Mesopotamia emerged.
As civilizations evolved, they developed language, culture, trade systems, laws, and city management — all of which played a role in making the barter system more organized.

Governments started keeping records of trades.

Example:

1 Ox = 20 sacks of wheat
Such agreed-upon rates helped make the barter system more structured and efficient.

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