Let us continue with our historical tour of money. We saw how the ancient Egyptians had a highly successful wheat based economy. Wheat, barley, salt and so on were some of the commodities which were used as money in the past. However, trading civilisations like the Sumerians were used to travelling large distances and they needed something portable and durable to use as money. Portable money is easy to carry. How much heavier is your purse when you carry a 1000 rupee note compared to carrying a 10 rupee note? There is hardly any difference between the weights of a 1000 rupee and a 10 rupee note. Modern money is portable. However, think of the ancient civilisations that used wheat as money.
A hundred fold increase in the value of an exchange simply means that the weight of the money, in this case wheat, has to increase 100 fold. As the size of the transactions and trades got bigger, it became increasingly painful to move money around. The Sumerians started using silver bars, as money. Silver is precious metal and is hence rare and valuable. Further, it has a high value/weight ratio. In other words, small quantities of silver can be used for transactions of high value. However, this switch to a precious metal as money still had two problems. Can you try and guess what these are?
The sellers of the goods needed to weigh these silver bars and also check the purity of the metal. Otherwise, they ended up getting an alloy with some cheaper metal mixed with silver. To circumvent this problem, the Sumerians stamped their weight on these silver bars. This resulted in an increased use and acceptance of these silver bars as money.
However, the real breakthrough as far as money goes, came in the 7 century B.C with the introduction of metallic coins as money. Croesus, the king of Lydia (in modern day Turkey) came up with the cool idea of creating metallic coins and stamping on them their weight and purity. One side of the coin had the emblem of the Lydian ruling dynasty. Interestingly, these first coins were made of electrum, an alloy of gold and silver!
Why did the Lydians use this strange alloy?
Simply because it was abundantly available in their country at that point in time. Within a 100 years, what started as an irregular dump had evolved into coins of regular shape and size, with the purity and weight guaranteed by the Lydian emperor.
Money Trivia
Currency debasement: The Roman Silver Denarius at the beginning of the first century A.D was essentially made of pure silver. However, in just 250 years, the various emperors of the empire had debased or devalued the Denarius by slowly reducing the silver content. Towards the end of the Roman Empire, the silver content of the Denarius had dropped to just 2%, and people stopped accepting it as money!
Young World Money-Wizards Quiz #4
Take a look at the five rupee coin. Do you know what it is made of? Does it have any precious metal (gold or silver) content? Does the government guarantee the metallic composition of the coin?
If you know the answers, email your answers to youngworld@money-wizards.com. The first four correct answers and the most articulate answer within seven days will each be awarded flipkart evouchers worth Rs. 250/- . The results and the answers will be published at www.money-wizards.com after seven days.About Money-Wizards: Money-Wizards is a company in financial literacy and money education. They conduct workshops and after school classes on money education for students. If you want Money-Wizards programmes in your school or neighbourhood, write to “Info@Money-Wizards.com”
Published - January 02, 2012 04:53 pm IST
