Money has existed since the beginning of human civilization. One of the earliest types of trade was the barter system, which involved the direct exchange of goods and services. It predominated in countries without a well-established monetary system. Despite being simple, the barter system suffered by the "double coincidence of wants." It was necessary that both sides have what they want, which was frequently not the case. Furthermore, it was difficult to determine the equivalent values of various goods and services.
Commodity money, which utilized goods with intrinsic value as money, was created as a result of the drawbacks of the barter system. Material goods including gold, silver, copper, grains, and livestock were used as commodity money. While Native Americans used wampum shells as money, ancient civilizations like Egypt used grain. Commodity money's worth was closely related to the material from which it was made.
As banking organizations were established in Europe during the Middle Ages, the idea of banknotes began to take effect. Initially, banknotes served as receipts for deposits that could be redeemed for the corresponding amount of gold or silver. The Gold Standard eventually took the place of this system in the 19th century. Countries agreed to exchange paper money for a specific amount of gold under this standard. The limited supply of gold and economic instability in the middle of the 20th century, however, were the fundamental reasons why the gold standard was eventually discarded. Fiat money, a form of cash that is not backed by a physical commodity, is what defines the contemporary period of money. Fiat money derives its value from the people's trust and confidence in the government that issues it. It cannot be redeemed for gold or silver; instead, people and governments lay their trust in the stability and durability of its value.
