From Barter to Coins
Long before money existed, people simply exchanged goods: a bag of grain for a pair of shoes, a sheep for an axe. That works, until you want shoes but the shoemaker does not need grain. Barter keeps running into the same problem: both parties must want exactly what the other offers.
The solution was an intermediate step that everyone accepted. Precious metals soon proved ideal for this: they are scarce, do not break and are easy to divide into pieces. Around the seventh century BC, the kingdom of Lydia, in present-day Turkey, struck the first real coins from a gold-silver alloy. Money as we know it was born.
The history of money at a glance
- Prehistory
Barter
Goods for goods. Works, but both parties must want exactly what the other has.
- ± 650 BC
The first coins
Lydia strikes coins from a gold-silver alloy. Weight and content determine the value.
- 17th century
Banknotes as a receipt
Gold is deposited with goldsmiths; the receipt itself becomes a means of payment.
- 1944
Bretton Woods
The dollar becomes the pivot of the world monetary system, linked to a fixed gold price.
- 1971
Decoupling
Nixon ends the convertibility of dollars into gold. The receipt loses its backing.
- Today
Fiat money
Money rests on trust and legislation. Gold remains the independent store of value alongside it.
Gold and Silver as First Money
For centuries the money was the precious metal itself. A gold or silver coin was worth exactly as much as the metal in it. From the Roman aureus to the Spanish gold real: whoever had a coin in their pocket literally carried their wealth with them. The weight and the content determined the value, and rulers had their likeness struck on it as a guarantee.
That system had one practical drawback: gold is heavy and lugging a large fortune around is inconvenient and dangerous. From that came the next invention.
The Gold Standard: Banknotes as a Receipt
Merchants began depositing their gold with goldsmiths and banks, and received a receipt for it. Such a note was easier to transport than the gold itself, and soon people simply paid each other with those notes. Paper money was in fact a receipt: a promise that a fixed amount of gold was waiting for you somewhere.
Thus the gold standard arose. The value of a coin was legally linked to gold, and you could in principle always exchange your note for the precious metal. That kept governments in check: you could not just print money without the gold to back it. After the Second World War this was arranged worldwide via the Bretton Woods agreement, with the US dollar as pivot, linked to a fixed gold price.
1971: Money without Gold
The system creaked when there were more dollars in circulation than gold to back them. In 1971, US president Nixon ended the convertibility of the dollar into gold. From that moment money was no longer backed by precious metal.
Since then we live in a world of fiat money: money has value because the government accepts it as legal tender and because we trust it together, not because there is gold in a vault. Convenient and flexible, but it also means that money can in principle be created without limit, which leads to inflation in the long term.
Precisely because modern money is no longer backed by gold, many still see gold as a beacon of stable value. Why gold has played that role for thousands of years, you read in why gold is a store of value.
Gold Today
Gold is therefore no longer a means of payment, but it remained what it always was: a scarce, imperishable, worldwide recognised form of value. Central banks still hold large reserves of it, and many families keep gold in the form of jewellery, coins or bars. If you want to cash in such pieces, you can sell them on location at De Munter, at the current gold price.