Some advantages of the internet, Google and their brethren are we come to know that we don’t know many things in this world. I had read the word monies many times but had never understood the exact meaning of the word. All I knew was that it had something to do with money. When funds come from different sources, we call them monies. Life is simpler when we are young. The other day I was playing a game of Market with my granddaughter Rhea. She took one rupee from me and said here are your ten kgs of potatoes. Then I gave her a ten rupee note, and she sold me a hundred mangoes. I was elated momentarily. I thought I had become Ambani! I believe that it is too far fetched. I thought again and concluded that I felt like a small–time politician and had lots of money with me.
When did the concept of money start? It started about 3000 years back. Before that, the world worked on barter. You go the market to dispose of your product. You bring back some vessels and clothes from respective traders. The situation must have been difficult in those times. You wanted to drive away an Elephant who was troubling you, and you had a stone axe to offer against the services. It must have been time–consuming to convince the expert that “axe” was the correct price for driving away the elephant. What was the “axe” worth? Was it also worth a sack of grain? Was it the right value of services provided by a doctor? Did those service providers want your axe?
One of the greatest achievements of money was to fix the value of driving away the elephant or for treatment by a doctor. Initially, a type of prehistoric currency involving easily traded goods like animal skins, salt and weapons developed over the centuries. These traded goods served as the medium of exchange even though the unit values were still negotiable. This system of barter and trade spread across the world, and it still survives today in some parts of the globe. Since the goods did not have a fixed value, the value decided was need-based. It was sometimes like short sell done in today’s times. We do short sale when we need to liquidate the assets in an emergency.
Sometime around 1100 B.C., instead of using the actual tools for barter, people started creating small replicas of the same weapons in bronze. But this led to another issue. Carrying and storing sharp tools (currency) became difficult though they were easy to carry. Since they were replicas sharpness was still there. People would get hurt using them. Hence, they switched over to making round coins. But first minted coins were created in Lydia in today’s Turkey. Minted coins started in 600 B.C. The coins were made of a mixture of silver and gold as it occurred naturally. The denominations were fixed by stamping pictures like owl and snake, and were used to differentiate denominations. An earthen jar would cost two owls plus one snake! Standard currency brought ease of doing business in Lydia, and it became one of the wealthiest empires of those times. But the active trade and wealth could not stop attacks from strong Persian armies who attacked and destroyed them, in turn looting the wealth.
While Lydia was leading in currency developments, around 700 B.C., the Chinese moved from coins to paper money. By 1270 A.D., the emperor had good control of both money supply and various denominations. The Chinese inscription on notes warned, “All counterfeiters will be decapitated.” Europeans kept using coins till 16th–century thanks basically to their control on precious metal mines in their colonies. Banks started using currency notes due to ease of handling. But in those days notes were issued by banks and private institutions and not by governments as is done today.
First paper currency appeared in colonial America. Since the distance between headquarters in Europe and the Americas was considerable, banks would run out of currency. So they started issuing IOU’s which in turn were used as currency. The way coins increased business, usage of notes also had similar effect. Today there is a lot of standardisation world over in currency, where governments control the currency and mints. International conversion rates are decided by markets and various other factors.
After the stability of bank notes, monetary transactions started to take place, in a big way, using credit cards. This system grew and ran smoothly throughout for about 40 years. But the credit cards are now challenged by debit cards, net banking where money gets transferred from a bank account to another , without any interruptions by banks. Users are gaining more control over transferring money.
Credit cards came in different avatars. Initially, cards had raised numbers; and these were captured on paper like we use the stencil. Initially, authorisation was not instantaneous; hence very few people had been issued cards. Then swiping cards came which could be authorised online. Now we have the same cards with “chips” for improved safety.
The currency system is now coming under different disrupting forces, like Bitcoins. Bitcoins have not made the impact as was expected by some people, and many governments are still not supporting them.
Now many wallets have come and offering a simpler method of making and receiving payments. Easier payments systems like UPI have come. The onset of online payment has been the real market disruptor. Now State Bank of India has come up with an easier modified system for ATM withdrawals. While leaving home, you can create a request on the mobile app provided by SBI. You get an OTP. The OTP is valid for half an hour. You go to the ATM. Punch OTP at the ATM and your money is in your hands! It looks like the physical presence of cards is going to be history in future. A new method of QR code reading instead of swiping cards is expected to come up in the next couple of years. You have a credit card; you go to an establishment. Card details will be stored on your cell phone; the app will read the QR code, you punch the amount and vendor gets his money. Easy? No sharing of card number every time on the net, will lead to more secure transactions and hopefully less hacking.
What is waiting for us in near future? Payment methods started from bartering to, a replica of tools, to round coins with pictures of tools; this was followed by minted coins, then IOU notes, credit card and online transactions. I understand that in future two transacting entities will need one–time authentication using block-chain technology. Their accounts will be linked permenantly by an irreversible process. Making a transfer to each other will be something like sending an SMS! Is it real? Are we dreaming? No, it is coming for sure. When? I don’t know, only the future can tell!
Later that day, when I was playing with Rhea, she had changed her transaction system. She would not accept cash! I had to hand over my card to her. She would swipe it and give me the imaginary machine to punch the PIN!