Why do people
accept this as money?

One interpretation holds that writing and numbers arose in Mesopotamia when small clay tokens representing quantities of grain and sheep gave way to pressing their shapes into clay tablets. Sumerian temples and palaces rationed barley to workers, lent seed to farmers and recorded everything on clay.

• History of accounting ↗

Silver was used for large transactions and as a measure of value, barley for everyday trade and wages. A shekel of silver (about 8.3 g) was originally a unit of weight, and pieces of silver were weighed on scales at each transaction. But silver rarely changed hands; most transactions were recorded in ledgers and settled later.

• Shekel ↗

Farmers who could not repay their debts lost their land or saw their families enslaved. When society neared collapse, Mesopotamian kings issued decrees on taking the throne that wiped out all private debts. The biblical Jubilee, which cancelled debts and freed slaves every 50 years, belongs to the same tradition. The problem of debt piling up until it breaks society, and its remedy, were there from the start.

• Debt jubilee ↗

The Sumerian word for interest is related to the young of livestock: lend someone animals and they bear offspring, so receiving those offspring seemed natural. A Babylonian clay tablet preserves a problem calculating how many years it takes money to double at 20% compound interest.

• Compound interest ↗

The Code of Hammurabi capped interest on barley loans at 33⅓% a year and on silver loans at 20%.

• Code of Hammurabi ↗

Egypt used the deben, a weight of copper, as its measure of value. Goods were priced at "so many deben" but actually paid for in grain, oil or cloth. Receipts for grain deposited in state granaries were sometimes used in trade.

Cowrie shells from the Maldives in the Indian Ocean were used as money in China, India and Africa for thousands of years, and in parts of Africa until the 19th century. Shang China also used shells as currency, which is why many Chinese characters for wealth, buying and selling contain the radical for shell (貝). The Latin word for money, pecunia, comes from pecus, livestock.

• Shell money ↗

The kingdom of Lydia, in what is now western Turkey, made the first lumps of metal of standard weight and purity stamped with an emblem. They were electrum, a natural alloy of gold and silver found in its rivers.

• Lydia ↗

Croesus, the last king of Lydia, minted separate gold and silver coins. In English, "as rich as Croesus" became a byword for enormous wealth.

Coinage spread quickly to the Greek city-states, and the Athenian owl became the reserve currency of the whole Mediterranean. In India, punch-marked silver coins appeared around the same time.

• Tetradrachm ↗

When a rich vein of silver was found at the Laurion mines near Athens, Themistocles persuaded the city to build 200 warships instead of distributing the silver to citizens. Three years later that fleet defeated Persia at the Battle of Salamis.

Aristotle argued that money exists for exchange, so interest, money giving birth to money, is unnatural. The Greek word for interest, tokos, also meant "offspring." His critique led to the bans on interest in medieval Christianity and Islam.

• Usury ↗

China first used bronze money shaped like knives and farm tools. Unifying the empire, Qin Shi Huang standardized currency with the banliang, a round coin with a square hole, and this shape remained the basic form of East Asian coins for more than 2,000 years. People strung them on cords and carried them in bundles.

• Banliang ↗

Starting with Nero, the silver content of the denarius, Rome's basic silver coin, was reduced. Making more coins from the same silver meant more money to pay the army right away.

• Denarius ↗

During the third-century crisis of civil wars and invasions, debasement reached its extreme, and the silver coin became in effect a copper coin with a thin coat of silver. People stopped trusting coins, and prices soared.

• Crisis of the Third Century ↗

The emperor Diocletian set legal maximum prices for more than 1,000 goods and wages. It failed. Merchants pulled their goods from the market and only the black market grew. The pattern of overissuing money and failing to contain it with price controls would repeat countless times.

• Edict on Maximum Prices ↗

The solidus, introduced by the emperor Constantine, kept nearly the same purity for almost 700 years in the Byzantine Empire and became the trusted money of the Mediterranean world. It is often cited as the root of the English word "soldier," one who is paid.

• Solidus ↗

The Umayyad dynasty minted its own gold dinar and silver dirham, inscribed only with text. Islamic merchants exchanged written promises of payment (sakk) between distant cities instead of coins, often cited as the root of the English "cheque." Because Islam forbade interest (riba), it developed finance in which investors and merchants shared profits and losses.

• Gold dinar ↗

In Song dynasty Sichuan, iron coins were heavy and low in value, so large transactions meant hauling huge quantities. Merchants began trading the receipts (jiaozi) they received for depositing iron coins, and when the Song government took over their issue, they became the world's first government paper money.

• Jiaozi (currency) ↗

Much of Liber Abaci, the book in which Fibonacci introduced Hindu-Arabic numerals to Europe, was commercial mathematics: currency exchange, profit sharing and interest calculation.

The Yuan dynasty made paper money its sole legal tender, and Marco Polo marveled that Kublai Khan made paper from tree bark circulate like gold. But as the Yuan and early Ming governments printed money whenever their finances ran short, its value collapsed, and in the 15th century the Ming effectively abandoned paper money and turned to silver. That decision would later reshape the world economy.

The money changers of Florence, Genoa and Venice worked on benches in the marketplace, which gave us the word "bank." A bill of exchange bought in Florence could be cashed in local currency in Bruges, so merchants no longer had to carry gold coins along dangerous roads, and interest could be hidden in the exchange rate to avoid the Church's ban. That Jews took on the moneylending forbidden to Christians became one source of long-standing antisemitism.

• Negotiable instrument ↗

The Medici Bank had branches across Europe and even managed the papacy's finances, and with its wealth the family patronized artists such as Botticelli and Michelangelo. Venice forced citizens to lend it money and let them trade those claims, creating the prototype of a government bond market.

• Medici Bank ↗

The mathematician Luca Pacioli was the first to set down in a book the double-entry bookkeeping used by Venetian merchants. Recording every transaction on both sides so the totals always balance, the method has been used unchanged for more than 500 years. Goethe praised it as one of the finest inventions of the human mind.

• Double-entry bookkeeping ↗

Silver coins minted from the mines of Joachimsthal in Bohemia were called "thalers," a word that passed through Dutch and English to become "dollar."

• Thaler ↗

Spain discovered the silver mine of Potosí in what is now Bolivia, and the forced labor of Indigenous people poured out enormous quantities of silver. Countless Indigenous workers died in the mines. The Spanish eight-real coin minted from this silver became the first global currency, accepted across Europe, Asia and the Americas, and after independence the United States based its own currency on this Spanish dollar.

• Potosí ↗
• Spanish dollar ↗

Thomas Gresham observed that when debased coins and good coins circulate at the same face value, people hoard the good ones and spend only the bad.

• Gresham's law ↗

As American silver flooded in, European prices multiplied over the 16th century. Theologians of the School of Salamanca in Spain and Jean Bodin in France were the first to explain in theory that prices rise as the quantity of money grows, forerunners of today's quantity theory of money.

• Price revolution ↗

In Ming China, which had abandoned paper money and begun collecting taxes in silver, silver was worth far more than in Europe. American silver passed through European merchants and Manila and ended up mostly in China, exchanged for silk, porcelain and tea. Economic historians see this as the first globalization.

• Manila galleon ↗

The Dutch East India Company was the first joint-stock company whose shares anyone could buy and freely trade on a market, and a stock exchange opened in Amsterdam the same year. In 1609 the Bank of Amsterdam became the center of international payments by converting coins of varying quality into a standard bank money.

• Dutch East India Company ↗

Londoners deposited gold in goldsmiths' vaults and received receipts, and soon the receipts themselves were passed around like money. Realizing that people never withdrew all their gold at once, goldsmiths began issuing and lending out more receipts than they held in gold. From that moment banks became places that create money. Even today most money consists of deposits banks create when they make loans. But if everyone comes for their money at once, a bank run, the bank collapses.

• Fractional-reserve banking ↗

Sweden's Stockholms Banco issued Europe's first banknotes and soon failed from overissue. Its successor, the Riksbank, founded in 1668, is the oldest central bank still in existence.

• Sveriges Riksbank ↗

Jacob Bernoulli calculated how much a sum grows at 100% annual interest compounded once, twice, twelve times a year, daily and every instant, and discovered the number it approaches, 2.718…: e.

• E (mathematical constant) ↗

The Bank of England was founded and given the privilege of issuing banknotes in exchange for lending money to an English government at war with France. Here began the union of national debt and central banking, in which the state borrows and the bank creates money on the basis of that debt. This system let Britain pay for wars against France, a country with three times its population, and win dominance in the 18th century.

• Bank of England ↗

Late in life, the physicist Isaac Newton, as Master of the Mint, set the exchange rate between gold and silver coins, but he priced gold slightly too high, so silver flowed abroad and only gold remained in Britain, just as Gresham's law predicted. Britain was effectively on the gold standard, made official in 1821.

John Law persuaded a nearly bankrupt French government to let him found a bank that issued paper money on a massive scale and the Mississippi Company; shares soared and then collapsed, wrecking the French economy. For decades afterward France distrusted paper money and banks, one background to the financial crisis of the revolutionary era. The South Sea Bubble burst in Britain the same year; Newton also lost heavily and is said to have lamented that he could calculate the motions of heavenly bodies, but not the madness of people.

• John Law's Company ↗
• South Sea Company ↗

European states believed national power lay in piling up gold and silver by boosting exports and cutting imports (mercantilism). France's François Quesnay argued that wealth comes not from gold but from the produce of the land, and drew the flows of the whole economy in a single table.

Adam Smith, a professor of moral philosophy, argued that a nation's wealth lies not in gold and silver but in its capacity to produce, and that the key is the division of labor. His famous example: divide pin-making into 18 operations and a workshop makes thousands a day. The "invisible hand," by which people pursuing their own interest promote the good of society through market competition, actually appears only once in the whole book. The textbook story that money arose from barter also begins here.

• The Wealth of Nations ↗

Malthus argued that population grows faster than food, so humanity will always fall back into poverty. Reading this book gave Darwin the idea of natural selection. Malthus's prediction was confounded by the Industrial Revolution and chemical fertilizer.

• An Essay on the Principle of Population ↗

Ricardo grounded the case for free trade in comparative advantage: if each country specializes in what it does relatively best and trades, everyone gains.

• Comparative advantage ↗

Marx analyzed how workers are exploited under capitalism and argued that the system would eventually collapse from its internal contradictions.

• Das Kapital ↗

Almost simultaneously, Jevons in England, Menger in Austria and Walras in Switzerland argued that a thing's value depends not on the labor that made it but on the additional satisfaction from having one more (marginal utility). Walras expressed the whole economy as a system of simultaneous equations, and from then on calculus became the basic language of economics.

• Marginalism ↗

Walter Bagehot argued that in a financial panic the central bank should lend without limit, at a high rate and against good collateral, so that sound banks would not fall to bank runs. In the 1870s Germany, the United States, France and others adopted the gold standard in turn, completing the classical gold standard. Because governments could not print money at will, prices were stable, but when gold was scarce, deflation followed.

• Lender of last resort ↗
• Gold standard ↗

As indebted farmers suffered under deflation, the American presidential candidate William Jennings Bryan declared that clinging to gold alone was crucifying working people on a cross of gold, and called for the free coinage of silver too.

• Cross of Gold speech ↗

In the Panic of 1907, the banker J.P. Morgan gathered bankers in his library and raised a rescue fund that stopped the crisis. Reflecting that the nation could not depend on one individual for its financial system, the United States created the Federal Reserve.

• Federal Reserve ↗

Defeated Germany was saddled with huge reparations, and as the government printed money endlessly, by November 1923 one dollar was worth about 4.2 trillion marks. People wheeled banknotes in barrows to buy bread and burned notes for fuel. The anger of a middle class whose lifetime savings became worthless was one of the backgrounds to the rise of the Nazis.

• Hyperinflation in the Weimar Republic ↗

Beginning with the New York stock crash, the world economy collapsed, and in the United States about 9,000 banks failed between 1930 and 1933. Friedman and Schwartz later argued that the Fed failed to supply money even as the money supply shrank by nearly a third, turning a recession into the Great Depression, and Eichengreen showed that the sooner countries abandoned the gold standard, the sooner they recovered. Britain effectively left the gold standard in 1931 and the United States in 1933.

• Great Depression ↗

Keynes rejected the established theory that markets return to full employment on their own. If people and businesses are too anxious to spend, demand falls short, production and employment shrink, and demand shrinks further in a vicious circle, so at such times the government must spend directly to create demand. For decades afterward this was the standard of economic policy.

• The General Theory of Employment, Interest and Money ↗

Before World War II had even ended, representatives of 44 Allied nations met to design the postwar economic order. Only the dollar could be converted to gold, other currencies were pegged to the dollar, and the IMF and World Bank were founded. Keynes proposed a common international currency, the "bancor," but the plan of the United States, which held most of the world's gold, was adopted. It was the start of dollar dominance.

• Bretton Woods system ↗

The Diners Club card appeared, followed in 1958 by BankAmericard (today's Visa), turning everyday spending into credit. In 1967 the first cash machine was installed in Britain.

• Credit card ↗

Triffin identified a fundamental contradiction: for the world economy to grow, dollars had to keep flowing out, which required the United States to keep running deficits, yet the more dollars were out there, the weaker the belief that they could be redeemed for gold. In 1963 Friedman and Schwartz's A Monetary History of the United States laid the foundation of monetarism, the view that the money supply drives the economy.

• Triffin dilemma ↗

As the Vietnam War and welfare spending pushed too many dollars into circulation, France and others demanded gold for their dollars, and on August 15 Nixon unilaterally suspended the dollar's convertibility into gold. From 1973 the exchange rates of major currencies floated freely on the market. At that moment every major currency in the world became fiat money, backed by nothing but faith in governments and central banks. For the first time since the credit ledgers of Mesopotamia, money was once again a pure promise.

• Nixon shock ↗
• Fiat money ↗

Saudi Arabia agreed to sell oil only for dollars and invest the proceeds in US Treasury bonds, in exchange for American security guarantees. The whole world now needed dollars to buy oil, and the dollar kept its reserve-currency status without gold.

• Petrodollar recycling ↗

Two oil shocks brought stagflation, soaring prices amid stagnation, and the Keynesian prescription only pushed prices higher. Fed Chairman Paul Volcker administered harsh medicine, raising the policy rate to nearly 20%. Unemployment soared and farmers surrounded the Fed's building with tractors, but inflation was finally tamed.

• Paul Volcker ↗

New Zealand became the first to set an official inflation target, which later became the standard for central banks worldwide. The same year the cryptographer David Chaum founded DigiCash, a company for anonymous electronic money. It went bankrupt in 1998, but his cryptographic research later became a foundation of cryptocurrency.

• Inflation targeting ↗

As capital moved freely across borders, a currency crisis that began in Thailand spread to several East Asian countries. It is the classic example of a sudden crisis brought by financial globalization.

• 1997 Asian financial crisis ↗

Eleven European countries abandoned their own currencies and adopted the euro as a common currency (with cash in 2002). Giving up money, a symbol of national sovereignty, was an experiment without precedent in history.

• Euro ↗

Kenya's M-Pesa let people send and receive money by text message without a bank account, opening financial services to tens of millions. In China, Alipay (2004) and WeChat Pay made Chinese cities almost cashless with QR-code payments.

• M-Pesa ↗

As the US housing bubble burst, bad mortgages and the financial products built from them collapsed in a chain reaction, and in September Lehman Brothers went bankrupt. Central banks cut rates to zero and used newly created money to buy government bonds and other assets in bulk, quantitative easing, and the European Central Bank (2014) and Bank of Japan (2016) even introduced negative interest rates.

• 2008 financial crisis ↗
• Quantitative easing ↗

Six weeks after Lehman's collapse, an anonymous figure named Satoshi Nakamoto released a nine-page paper. Digital money had always needed a central authority to stop people spending the same money twice. Bitcoin solved this by cryptographically chaining every transaction onto a ledger (the blockchain) shared among countless participants, and making it computationally expensive to add new records: a fusion of cryptography, distributed systems and game theory. Satoshi's identity is still unknown.

• Bitcoin ↗

The first block, mined on January 3, was inscribed with a British newspaper headline: "Chancellor on brink of second bailout for banks." Total supply is fixed forever at 21 million coins, earning it the name "digital gold." It was an attempt to rebuild money, cut loose from gold in 1971, on scarcity once again, this time with mathematics and code. On May 22 the following year a programmer bought two pizzas for 10,000 bitcoins, recorded as the first real-world purchase.

The anthropologist David Graeber argued that barter is not a stage before money but something that comes after it, and that credit and debt, ledgers, came first. This view, which makes us reread the entire history of money, links the ledgers of Mesopotamia with the ledger of the blockchain.

• Debt: The First 5,000 Years ↗

Mt. Gox, then the largest Bitcoin exchange, went bankrupt after a hack. The same year Tether appeared, a stablecoin that pegs one coin to one dollar and holds reserves. The goldsmith's receipt of the 17th century, reborn in digital form.

• Mt. Gox ↗
• Stablecoin ↗

Ethereum went beyond money to enable contracts that execute automatically on the blockchain (smart contracts), and on this foundation decentralized finance and NFTs arose.

• Ethereum ↗

When Facebook announced plans for its own currency for billions of users, central banks were shocked, and research into central bank digital currencies (CBDCs) accelerated sharply. Under regulatory pressure, Libra was eventually abandoned.

• Diem (digital currency) ↗

The Bahamas launched the Sand Dollar, the world's first central bank digital currency, and China began large-scale pilots of the digital yuan. A bank deposit is a bank's debt, but a CBDC, like cash, is guaranteed directly by the central bank. Only three countries, the Bahamas, Nigeria and Jamaica, have formally launched one.

• Central bank digital currency ↗

El Salvador became the first country to make Bitcoin legal tender, then dropped the requirement for merchants to accept it in 2025 when it received IMF support.

• Bitcoin in El Salvador ↗

Amid the pandemic, war and supply-chain disruptions, inflation in major economies hit 40-year highs and central banks raised rates sharply. In May the algorithmic stablecoin Terra-Luna collapsed, wiping out tens of billions of dollars in days, and in November the exchange FTX went bankrupt after it emerged that it had misappropriated customers' money.

• 2021–2023 inflation surge ↗
• Bankruptcy of FTX ↗

When the United States approved spot Bitcoin exchange-traded funds (ETFs), Bitcoin began trading on traditional financial markets like a stock.

In January the US president barred federal agencies from pursuing a CBDC by executive order, and in March created a "Strategic Bitcoin Reserve" to hold, rather than sell, seized bitcoin. On July 18 he signed the GENIUS Act, the first federal regulatory framework for stablecoins. It was a choice to leave the digital dollar not to the state but to private stablecoins.

• GENIUS Act ↗

In October 2025 the European Central Bank decided to move to the next phase of the digital euro, and in June 2026 the European Parliament passed the digital euro legislation, with a pilot targeted for 2027 and first issuance for 2029. Europe, seeking to reduce its dependence on American payment networks; China, with a digital yuan meant to escape the dollar payment system; and the United States, defending dollar dominance through stablecoins, are taking different paths. Concerns are also growing that a central bank able to see every transaction could become an instrument of surveillance, and that banks could be shaken if deposits move into CBDCs.

• Digital euro ↗