This year has started with another frenzy in cryptocurrencies with Bitcoin prices crossing $50,000. Some countries such as China are close to starting their central bank digital currencies (CBDC). In India, the government is planning to issue a Bill that defines digital cryptocurrencies more clearly and the Reserve Bank of India is studying the scope of a CBDC.
To better understand these developments, a look back at history and the evolution of money is warranted — ideas, they say, go around in circles. What is seen as a novel idea today, usually has a past, and is often just packaged differently.
In the first of a three-part series, we trace how the concept of money evolved down the ages.
Money has a long history with a fair bit of disagreement over its origins. Economists often cite how the inadequacies of barter led to need for money. For a successful barter, the two parties need to have common goods or services. As goods and transactions multiply, barters become near impossible. This led to a one good/commodity becoming something which could be used to pay for goods and services. This common good became eventually known as money drawing its name from the ancient Roman Temple of Juno Moneta, which also served as mint of the Roman Empire.
In 1835, the Coinage Act was passed which unified coinage across India. In 1861, the British crown decided to unify and monopolise the banknotes as well. The Paper Currency Act was passed which took away issuance of banknote powers from both private and presidency banks. However, unlike their home country, the British neither gave this function to an existing bank nor set up a new entity. They managed the issuance within the government.
(Part II, which will be published on March 1, will look at how the world eventually moved from gold/silver driven currency to fiat currency, and the impact it had on monetary systems. Finally, Part III will delve on the current discussions on digital currencies.)