Money plays a critical role in facilitating trade, enabling economic transactionsTransaction Exchange of value, property, or data between two parties., and shaping our financial landscape. Its origins can be traced back to ancient civilizations, evolving from barter systems to physical currencies and, in recent times, digital forms. Let’s look at money in a little more detail.
The triple role of money: a cornerstone of economic exchange
In a general sense, when we refer to money, we mean everything that is used as a means of payment and intermediary of exchanges. Money, in any of its forms, performs three different functions:
- Unit of Account: money acts as a unit of measurement of price, i.e. the value of goods and services. Prices are expressed in monetary units, enabling us to compare the relative worth of different items.
- Medium of Exchange: money acts as a mean of payment in commercial transactions. eliminating the inefficiencies and limitations of barter systems. Instead of directly exchanging goods for goods, we can utilize money as an intermediary, allowing us to acquire goods and services without the need for exchanging one product for another.
- Store of ValueStore of value An asset or commodity that maintains its purchasing power over time.: money allows individuals to save for future needs and preserve their purchasing power over time.
The transformation from tangible to digital forms: a paradigm shift in money
Money has not always existed in the history of human evolution. People began to trade, first with barter and then with precious metal coins, and tradingTrading Trading is a speculative activity of buying and selling financial assets aimed at profit. became a central part of life. Actual money is a relatively recent invention, dating back to around the middle of the 7th century BC. Tradition has it that the coin was minted for the first time by Croesus, king of Lydia, in the 6th century BC. In the following century the use of minting coins spread to the Persian Empire and Greek cities. Then, through the Greeks, the use of money was introduced to the Western Mediterranean. Finally, at the time of Alexander the Great, it also spread to India.
However, the use of metal coins involves significant security problems in the transfer of large sums of money, both due to the risk of theft and loss, for example in trades by ship. It is therefore appropriate to use different payment instruments, of a paper type, which transform the metal currency into a banknote or payment order. The first to issue paper money were the Chinese during the Middle Ages.
Today money can also exist independently of a physical representation. For example, digital or electronic money constitutes monetary value stored in the form of a bank account, prepaid card or electronic wallet on a smartphone.
The future of money is likely to be shaped by a convergence of physical and digital forms. While physical cash may remain prevalent for small transactions and everyday use, digital money is poised to play an increasingly significant role in large-scale transactions and cross-border payments. Blockchain technology holds the potential to revolutionize the global financial system, offering enhanced security, transparency, and efficiency.