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Money plays an important part in writing history for over 3000 years, even if at first it had nothing to do with the currencies, we use today for buying burgers and jeans. We can track the use of currencies back to the origins of humanity because since ancient times people decided that goods exchange is a better option than fighting for them. 

In ancient times, people relied on barter to buy what they needed. Barter allowed them to exchange money and services, and they traded everything from household wares, to clothing, and weapons. In time, the barter system evolved so people started to trade animals, metals, and grains. Everything measurable could be used as a mean of exchange. During the 10th millennium B.C, domestic animals were common means of exchange. The development of farming and writing encouraged the use of grains for trade. Some societies used tokens that looked similar to coins for transactions. The tokens featured an image of an item the holder wanted to trade, to help them remember what goods exchanged ownership.  

How did the banknote emerge in Europe?

It took some time for paper currency to appear and be used in Europe. Marco Polo and William of Rubruck were the first travelers that brought paper currency on the continent. But because Europe lacked the needed material for creating paper currency, they used other exchange methods. The first paper mill in Europe was established in Spain around 1150. 

Europe experienced a tumultuous period during the Renaissance and transporting metallic coins wasn’t exactly an option for governments and merchants. They had to find solutions to prevent theft, so they adopted the practice of making transactions with handwritten promissory notes. Europe lacked political unity, so people counted on gold and silver bullion as a means of exchange. But because it was difficult to transport large amounts of bullion on long distances, Italy introduced a bill of exchange to facilitate money transfer, in the 14th century.

Starting with 1500 banking institutions offered receipts in exchange when people created deposits. The receipts had the name of the owner and were payable upon demand. Some of the receipts included the words “or the bearer” so the depositor established that if someone else presents it, they can receive the deposit. 

The first European money was issued in Europe in the Netherlands during the 1574 siege of Leyden. 

In 1661 the government of Sweden was the first government in Europe that issued a state-sponsored banknote. In 1694, the Bank of England, as part of King William III’s effort to finance the war against France became the first government bank that created a paper currency. These banknotes also included the mention “to the bearer” so they circulated among people. Because, at first the Bank of England issued paper currencies in quantities larger than 50 pounds, higher than the average annual income, people continued to use coins. 

It’s important to note that not all introductions of paper currency were successful and ended in inflationary over the issuance of currency. When paper currencies were used to replace metal coins in Sweden and America inflation was inevitable. The failure of banknotes stayed in the collective memory more than it should and it prevented its evolution. 

The dollar in the USA

While the Bank of England issued banknotes for continental citizens, in the USA, colonists had no access to paper currencies, so they used a modern form of barter. They traded tools, furs, and foodstuffs with the Native Americans. When the USA fought the Independence War with England in 1775 the Continental Congress issued a paper currency known as “the Continental” which was later denominated in units called dollars. 

The word dollar was borrowed from a Dutch currency used at the time. But because the American government didn’t control the creation of the dollar currency, it quickly lost value. In 1786 the Congress authorized the issuance of the dollar by the USA Government, and in 1792, it created the USA mint to manufacture and spread coins. However, until the Civil War began in 1861 the USA government didn’t print regularly dollars to introduce them to circulation. 

Forex trading

When governments created standardized currencies, international trade increased and so the need for a foreign exchange market. The first Forex market appeared in Amsterdam in the 17th century. At first, currencies were used to buy different items but as the market evolved, they were seen as assets. Nowadays, the Forex market is one of the largest in the world. When people want to trade currencies, they need to collaborate with a broker, they can choose from a website like FXList, to facilitate their trades. 

At the start, all forms of money were connected to the intrinsic value of the materials they were made from, but banknotes needed backing from other assets because the material they were made from had no value. Because, since the beginning of trading the most common asset people used to guarantee currencies was gold, governments used it to back paper currencies. Britain was the first state that adopted a gold standard for its currency in 1821. 

The value for each currency isn’t important only for the people who used it, it was a key factor in establishing the prosperities of nations and economies. Often the value of currencies led to national and international conflicts. At the end of WWI and WWI, in 1946, nations worldwide entered into the Bretton Woods agreements that established the use of gold and the US dollar to back currency values around the world. 

But because in time the products and reserves of gold decreased, the USA decided to give up the gold standard, and many other countries followed its example. Since then the value of currencies was backed not by the value of an asset, but by the reliability of governments and faith of the public. With the appearance of digital currencies, trading experienced sophisticated times and currency exchange got new forms. Electronic trading encourages trading of large volumes of currencies between individuals, banks, and companies.