Topic 1

THE HISTORY OF MONEY

Traditional Societies

These days, we use cash or a credit or debit card to pay for goods that we buy from the shops. However, this has not always been the case. In traditional societies, people had to come up with another way to ‘buy’ the things they needed.

In a traditional society, customs, beliefs and habits were passed down from generation to generation. A traditional society would survive by hunting, gathering, growing their own crops and making their own tools. There was no money and people did not trade.

Living in a traditional society was hard work. People had to make and grow everything they needed. This was called a subsistence economy. After a while, people realised they could produce better quality goods if they specialised in the production of one item, so they decided to put all their time and energy into making one good product. The quality of goods they produced was then of a high standard. They started to produce more goods than they needed and traded these goods with other members of the community.

The people living in these traditional societies had no time to be lazy, as the more they made or produced, the more goods they could trade with others in the community. They had to rely on the natural resources in their area, to make clothes, equipment and any other goods that they needed

Bartering

Over time people became farmers. They harvested crops and kept livestock such as sheep, goats and cattle. They also developed a system so that they could trade goods with each other, as they did not use money as we do today. This was known as bartering. A person would trade something they had, for something that they wanted.

 From around 9000 to 6000 BC, cattle were used as currency, and grain was used from around 3000 BC. The Chinese were amongst the first to use bartering in around 1200 BC. They used cowry shells as currency to trade for food, clothing and other goods.

Advantages of Bartering

• People only bartered for what they needed, therefore there was no waste.

• The right amount of goods were produced to meet the needs of the community.

• Two people’s needs could be met, as they swopped their unneeded item for one they needed.

Disadvantages of Bartering

• Both barterers’ wants had to be the same. For example,

Barterer A must have wanted to exchange their tomatoes for oranges and Barterer B must have wanted to exchange their oranges for tomatoes.

• It could be difficult to decide on the value of the items and which one was worth more or less.

• Some goods could not be cut into smaller portions.

• The barterers had to carry or transport their goods to the market and this was difficult when trading larger items.

Coins

The Chinese people were the first to make and introduce metal money around 1000 BC, in the form of bronze or copper cowry shells. The first coins made from silver were used in Turkey around 500 BC. These coins were originally tokens used to trade goods at markets. The coins were easy to use and carry.  The rulers of each country were responsible for making their own coins. The metal was weighed and a stamp (usually the face of the ruler) was put on each coin. When the coins were weighed, that would be the amount the coin was worth. For example, if a coin weighed 20 grams and an item that they wanted to buy cost 40 grams, two coins would need to be handed over.

In South Africa, our coins are made from steel, copper, tin and nickel. The South African Mint is in charge of making and distributing all the coins in South Africa. When metals are melted, this process is called minting.

Promissory Notes

A promissory note is a written document showing how much money a person owes to someone else. The two people agree when this money must be paid by. It usually has both parties’ signatures and an official stamp. Promissory notes were used before there was money. Farmers would sign promissory notes agreeing to pay the landlords for the use of their land.

They would use their harvested crops as payment. Once payment had been made, the promissory note would be cancelled. Banks still use promissory notes today. If you take out a loan with a bank, you would need to sign a promissory note.

Promissory notes may also be made in informal transactions, for example, between friends or family members.

Paper Money

The Chinese were the first to invent paper money during the 7th century and used paper currency from around 806 AD. Prior to this they used bills made of leather from around 118 BC. They used paper money for more than 500 years before it spread to Europe and America. 

Since then, countries all over the world use paper money. With the introduction of paper notes, ‘commodity money’ became ‘representative money’, meaning that what the money was made of, (i.e. paper) was no longer valuable. Representative money had the bank’s promise that they would exchange this ‘money’ for a certain amount of gold or silver. This exchange could take place any time, or on demand. Representative money has now been replaced by ‘fiat’ money. 

This means that governments have passed laws stating this is the legal currency of that country. Every country has its own system of money known as its ‘currency’. Any person who is selling something has to accept the money given to them in the currency of that country.

In 1816, in England, followed by America in 1900, the ‘gold standard’ was introduced. Gold was recognised as the standard of value and the value of banknotes was linked directly to the value of gold.

South African Currency

In 1782, the Dutch Governor Van Plettenberg, introduced paper money to the Cape Colony. This was given in ‘rix dollar’ and ‘stiver’ denominations, which was the currency of the Cape at that time. All notes had to be hand written and stamped with an official government stamp as there was no printing press until around 1803. After 1803 all notes were printed.

Prior to 1961, the currency in South Africa was British Pounds.

 When South Africa became a republic, a new currency using Rand and Cents was introduced. The South African Reserve Bank (SARB) issues all notes and coins in the country. The most recent South African banknotes issued in 2012, all have a picture of Nelson

Internet and Electronic Banking

Once the World Wide Web had been established in the late 1980s, EFT’s (Electronic Fund Transfers) were introduced and internet banking was established. Online shopping was introduced in 1994 and mobile payments could be made in 1997.

Electronic banking means accessing your bank account using a computer, laptop or smart phone. Salaries and wages can be paid into bank accounts through electronic banking. This is a popular way of doing transactions, as it is safer than carrying large amounts of cash. Electronic banking also saves time as you don’t have to go to the bank to deposit or withdraw money

There are many types of accounts you can open at a bank. Once you have opened an account, most banks will give you a card that allows you to deposit or withdraw money at an ATM (Automated Teller Machine). You can also check your account balance, pay your accounts and transfer money between accounts, (if you have more than one bank account) and get a mini statement of the funds in your account. 

You can perform these transactions at an ATM anytime of the day. The first ATM (Automated Teller Machine) was introduced by Barclays Bank, in London in 1967, but ATM’s only became commonly used in the 1980s. Most banks require you to have a minimum amount of money in your account. This is known as your bank balance.

‘Plastic’ Money

Credit cards were introduced in the US and Europe in the 1920s, in the form of charge cards which were used mainly in hotels and restaurants. In 1950, Diners Club launched the first credit card. American Express and Visa followed in 1958.

There are two main types of bank cards:

• Debit Card

You can buy goods using this card rather than using cash, as well as withdraw or deposit money from and into your bank account. You are using your own money and can only spend money that you have in your account, so you are not buying on credit.

• Credit Card

When you use a credit card to buy goods, you are borrowing money from the bank. You have to pay this money back to the bank in monthly instalments, with an amount of interest added on. You can also withdraw cash using a credit card, but this too must be paid back to the bank.

 Technology can help us do many things with money, such as:

• Electronic banking or EFT (Electronic Funds Transfer)

This is moving money from one account to another using a computer. This has replaced paper money transactions and is much safer. Many businesses and individuals use EFTs to pay their bills. It saves time and money.

• Direct Deposits

Direct deposits can be set up so that the funds are either taken out or put into your bank account, usually every month. You can do this with your salary or with bills that need to be paid on a regular basis, for example your electricity account.

• Computers, tablets, smart phones

With these devices, you can check your account balance, pay bills or transfer money between accounts.

The Role of Money

Can you imagine a world without money? It’s true what they say, “Money makes the world go round”. Money is used as a tool for exchange, meaning we swop money for either goods, such as a television, or services, such as having your hair cut. You can use money at any time, not necessarily straight away. For example, you can save for a computer until you have enough money. These days, money can be moved easily from one place to the next.

 You can spend money when it is convenient for you. This could be today, tomorrow, next week or next year. You do not have to spend it all at once, so money can be stored and used later on. However, inflation can reduce the value of money over time. Money can increase in value if invested wisely.