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How is Money Produced?

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How is Money Produced?

Before the invention of money, people used to exchange their surplus goods for other products in order to meet their needs.

Trade among ancient civilizations such as the Sumerians, Babylonians, Assyrians, Egyptians, and Greeks began long before the advent of money. In this period, people were producing more than they consumed in order to exchange their products for other products. E.g; The Sumerians traded grain, dates, cattle, and leather for precious stones, various metals, and wood.

The mutual coincidence of needs was not always something that could be achieved easily. Even for this reason, people used to travel from village to village, traders, and traders until they got what they wanted. For example, someone who had extra rice and wanted to buy cloth had to find someone who had extra cloth and wanted to exchange it for rice.

Of course, these are just a few examples of trade activities that contribute to the development of large and important societies. However, there were some difficulties with trading this way. For the exchange to occur, someone had to have the desired product and was willing to exchange it for another product or service.

He bargained hard until people agreed on how much of his produce was enough to get what they wanted. They should have made a joint assessment of the value of the products they wanted to replace.

Also, people often had to exchange for approximate values. However, since not everything is divisible, the swap could not take place at its full value. For example, if we wanted to replace our chickens with a cow, the value of a cow could be seen as 3.5 chickens. Since we could not give half a chicken in this case, we would give more or less chicken than the value of the cow.

Finally, it was very difficult to save. Because in the barter economy, only products that could be stored and whose value did not decrease over time could be accumulated. Those who had perishable products such as milk, fruit, meat and eggs would try to replace the products they had with products that could be stored as soon as possible. Unfortunately, this meant that people could suffer losses if perishable products were not replaced in time.

Due to the difficulties of barter, products such as metals, animals, salt, wood began to be accepted by everyone in shopping. Thus, trade was carried out through these products. These products are examples of the concept we call product money. This type of money fulfills the three functions of the currency:
√ As a medium of exchange,
√ as a unit of measure and
√ as a store of value.

However, using raw metals was not very convenient, as any merchant accepting payment had to be sure of what they were receiving in money. He had to check the authenticity of the metal (whether it was really gold or silver), its weight, its purity (whether less precious metals were mixed into it). For this reason, every trader had to carry a set of scales and touchstones with him in order to make the necessary checks. This situation was solved with coins (coins) of different sizes. Thus, coins were born.

Precious metals were the most suitable thing to be the product of money. Because these metals were rare in nature and this made them valuable. Precious metals also had features such as beauty and easy processing, which were accepted by everyone. They were able to maintain their
appearance and value over time. Although they took up little space, they were of great value and could be divided into pieces of different sizes. This allowed us to pay exactly the money we needed for the products we wanted to buy.

Value of Money
From the past to the present, money is a symbol of sovereignty. Therefore, states would mint coins as symbols of their sovereignty. Each minted coin had its value, secured by the portrait of the ruler or the seal of the city. This value was determined by the amount of precious metals in the money. The existence of coins of different values ​​facilitated shopping. All you had to do was give coins equal to the value of the product you wanted to buy.

Coin production was very common during the Roman Empire. For this reason, many currency reforms were made to give the right to print money and regulate the value of money. Despite a few minor changes, coins over the past centuries have remained pretty much the same as coins minted in Roman times.

The amount of precious metal in the money determined the value of the money. However, the precious metal’s value is affected by events abroad and could change over time. For example, after the discovery of gold mines in America, the price of gold and precious metals fell in Europe. Coins used in Europe depreciated in the 16th and 17th centuries.

When their treasuries were emptied, states mixed less valuable metals with the coins they produced, reducing the proportion of precious metals in money. This meant that the coin had a lower value than the value written on it. As such money spread, that state’s money was losing confidence.

BIRTH OF THE BANKNOTE
Banknotes emerged as a result of the inadequacy of coins with the development of trade. The first paper money was printed in China in the 9th century AD, and its use soon spread to this region.

Paper money came to Europe in the 13th century thanks to Marco Polo. Marco Polo, who went to China with his father and uncle, wrote the Book of Travels, describing his observations during this trip. According to what is written in the book, Marco Polo saw that thanks to this journey, a large amount of paper money was produced in China by the order of Emperor Kublai Khan. These coins were made from mulberry bark and had the emperor’s seal stamped on them to prove that the coins were valid for payments.

Paper money was accepted in Europe until the end of the 14th century. By the end of the 14th century, jewelers and merchants began to write paper receipts for precious metals such as gold and silver they kept in their warehouses. With these receipts, called banknotes, merchants guaranteed that they would later issue coins or gold. This is where the banknote name we use for paper money today comes from.

Paper money was accepted in Europe until the end of the 14th century. By the end of the 14th century, jewelers and merchants began to write paper receipts for precious metals such as gold and silver they kept in their warehouses. With these receipts, called banknotes, merchants guaranteed that they would later issue coins or gold. This is where the banknote name we use for paper money today comes from.

Features of Banknote
In the beginning, banknotes were produced only by banks. When people brought their precious metals and assets to the banks, the banks issued the banknotes they printed in return. Banknotes provided convenience during shopping as a practical and low-cost payment tool. This made banknotes an acceptable means of payment for everyone.

At the time when banknotes were just beginning to appear, only a few banks were authorized to issue banknotes in exchange for gold. However, not every bank used this authority in the same way. Some gave notes worth less than the gold brought to the bank, others more. It was difficult to know which banks were fair. Therefore, a set of rules was needed to ensure that the banknotes match their true value.

Originally posted 2021-12-11 23:17:03.

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