Grasping World History from the Perspective of Currency [Part 1] - What Is Currency? -

Through the history of currency and its role, we explain the story of world history in an easy-to-understand manner. In Part 1, we explore the definition and functions of currency, its various forms, and its historical development.

Hello everyone!

When you think of world history, it feels like embarking on a journey through vast expanses of time and space, doesn't it? But what kind of story would emerge if we re-examined that history from the single perspective of currency ?

This time, we would like to explore together how currency has shaped world history, its roles, and its meanings. In this two-part series, we first present [Part 1]: "What Is Currency?"

What Is Currency?

Definition of Currency

Currency refers to a medium widely accepted by people to facilitate the exchange of goods and services. It is a crucial element that forms the foundation of economic activities, and its main functions are classified into the following three categories.

Main Functions of Currency

  1. Medium of Exchange (Means of Transaction)

    Currency makes the exchange of goods and services easier. For example, if you have apples and want oranges, finding someone who directly has oranges can be challenging. However, by using currency, you can sell your apples for money and use that money to buy oranges.

  2. Unit of Account (Measure of Value)

    Currency allows the value of goods and services to be expressed in a common unit. This enables you to compare the prices of apples and oranges or know the cost of bread and clothing.

  3. Store of Value (Means of Value Preservation)

    Currency serves as a means to preserve value over time. You can save the money you earn today and use it in the future when needed.

Forms of Currency

Currency has taken various forms depending on the era and region.

Main Forms of Currency

  • Commodity Money

    • Items with intrinsic value like salt, shells, and livestock were used as currency.
    • For example, shells were used in ancient China, and beads or cloth were used in Africa.

  • Metal Currency

    • Coins made from metals like gold and silver. These metals were rare and non-perishable, making it easier to preserve their value.

  • Paper Money

    • Currency made of paper. It's lightweight and easy to carry, making it convenient for handling large amounts.
    • However, since paper itself has no intrinsic value, the government's credibility becomes crucial.

  • Deposit Currency

    • A form where transactions are conducted through money deposited in banks. Payments made via credit cards or debit cards fall into this category.

  • Electronic Money & Digital Currency

    • Digital money used via the internet and electronic devices.
    • This includes electronic money and virtual currencies (cryptocurrencies).

Similar Terms to Currency

  • Money

    • Refers mainly to tangible money like metal coins and paper bills. When you talk about your "allowance," the "money" refers to this.

  • Banknotes

    • Money made of paper. The 10,000 yen note or the 1,000 yen note are examples.

  • Coins

    • Money made of metal. The 100 yen coin and the 5 yen coin are examples.

  • Currency

    • Money used in specific countries or regions. Japan's "yen" and America's "dollar" fall under this category.

The History of Currency Itself

Currency has evolved alongside human history. Unraveling its history reveals the development of economies and societies.

Transition from Barter to Currency

When people first began trading, barter was the primary method.

For example, someone with fish would directly exchange it with someone who had grain. However, this method had problems. If the other person didn't have what you wanted or the exchange ratios didn't match, the trade couldn't occur.

To solve this problem, people started using items that everyone recognized as valuable as a medium. This was the beginning of currency .

The Emergence of Metal Currency and the Development of Commerce

Around the 7th century BCE, the world's first metal currency was created in the Kingdom of Lydia , located in present-day western Turkey. These coins were made of gold and silver, and the materials themselves had value.

The introduction of metal currency led to significant developments in commerce. People could trade with distant places, and economic activities became more vibrant.

Currency and State Power

The issuance of currency became an essential authority of the state. Coins bore the images of kings or national emblems, symbolizing national authority. Additionally, currency was used for tax collection and maintaining armies, making it indispensable for state governance.

The Introduction of Paper Money and the Credit System

Around the 9th century, the world's first paper money emerged in China. Paper money was lightweight, easy to carry, and convenient for handling large sums. However, since the paper itself had no intrinsic value, its worth was based on the credibility of the issuer (government or bank).

This led to the development of credit systems, and banks and financial institutions began to play significant roles.

International Trade and the Standardization of Currency

Following the Age of Exploration, trade with various parts of the world became active. However, differing currencies across countries made transactions inconvenient. To address this, the gold standard and silver standard were introduced, basing currency value on gold and silver, leading to international standardization of currency values. This stabilized exchange rates and further boosted international trade.

Managed Currency Systems and the Modern Economy

In the 20th century, the gold standard was abolished, and many countries adopted a managed currency system . This system allows central banks to adjust the money supply to stabilize the economy. Currency became a vital tool in national economic policies, used to control inflation (rise in prices) and deflation (fall in prices).

Digital Currency and the Future of Money

Recently, new forms of currency like cryptocurrencies represented by Bitcoin and Central Bank Digital Currencies (CBDCs) that various countries are considering have emerged. These are transacted over the internet, promising increased transaction speed and transparency.

Digital currencies have the potential to bring significant transformations to future finance and economies.

Conclusion

Currency is not just money; it's deeply intertwined with human history and societal development. From the beginnings of barter, evolving into metal coins, paper money, and now digital currencies, currency remains a crucial element supporting our lives and the economy.

In the next [Part 2], we'll explore the major flows of world history from the perspective of currency. Stay tuned!