You may have heard the saying, “money rules the world” many times before. It’s easy to see why this saying has become so popular. Everywhere you look, you’re sure to see the effect that money has on our day-to-day lives. We use the money to buy the things we need and get stuff we like. The truth of the matter is that money might be the single most influential thing that any of us have. It dictates your present goals and ideas as well as how your future will go.
But it wasn’t always like this. If you were to look at human history compared to the history of our planet, we make up a small fraction of time. We evolved over the course of many years to reach the place we are today. When humans finally managed to settle down and form tribes, it was the dawn of a new era. All of our progress wouldn’t be possible without our complex society.
However, at which point did humans decide that we needed currency? And how has this system evolved over the years? This blog well answers both of these questions and talks about how the current crisis has affected our currency.
A Tale as Old as Time: The First Printed Currency
Human settlements were only possible because of the discovery of agriculture. Our access to a constant source of food is what allowed us to set up tribes. But living inside these settlements was a bit tricky because a single person wasn’t able to grow all of the plants they needed or find everything they required because it would need a ton of work and resources. That’s why people started to barter and trade their goods with each other. Eventually, this form of exchange formed the basis of trade. People were finally able to get what they needed. But the fatal flaw of the bartering system is that you need to offer goods that are of equal value to the goods you want to receive. If you’re not able to procure the same materials that are needed then it isn’t possible to get what you want. That’s why currency was finally formed.
The very first evidence of currency is hard to pinpoint because of the nature of it. Currency can be anything that has a monetary value and gets exchanged for goods. It might surprise you to learn that humans started using receipts before we began using a clear source of money. There is clear evidence that certain empires like the roman empire used clay tablets to mark their purchases. These tablets served as a way to provide proof of purchase, and we still use receipts for that purpose to this day. These clay tablets could be exchanged for goods which meant that you could give in your items at one town and then carry the tablet as evidence to another place where you could ‘redeem’ it for the required goods.
Eventually, certain coins of silver and gold were made to act as a concrete measurement of money. When humans first started minting coins they used metals like gold, silver, and copper because of the fact that these metals already had clear monetary value. These coins usually had certain markings on them that denoted the amount that they were worth. Although coins were a very useful form of currency and they remain useful to this day, there is one serious flaw that they have. The main issue with coins is that they’re expensive to mint. That’s why most of the coins we see today aren’t made of gold and are instead made up of a mixture of zinc, copper, manganese, and other less pricy metals.
Roman gold coins mixed with other metals
However, even with these changes coins are still quite costly to mint which is why some countries like Canada have discontinued certain coins like the penny. The invention of printed money led to advancements in the economy that improved the way we trade and this is why banknotes are used all around the world.
We know that the first evidence of printed money was first found in China. The practice of making these receipts was common during the Han dynasty so the Chinese people already had a lot of knowledge about various kinds of trading systems. There were also many coins that were in circulation during this time that were made out of bronze or even gold. However, it wasn’t until the 7th century when the first printed banknote was made. This printed money was made using wood printing. The writing included information about the amount of money that the note was worth. There were also variations in the type of notes that were produced from region to region. This currency was part of the reason why China was able to grow its economy rapidly. The advantages of printed money are enormous, and China realized this.
Eventually, many European traders noted this form of currency, and soon, countless countries started coming up with their form of currency. The value of a country’s currency is directly related to its economic status. Now it’s important to note that although bank notes are extremely useful, there is a downfall to them. The switch to banknotes occurred in the first place because coins tend to be more expensive to produce because of the materials they use. But since banknotes are relatively cheap to make, there is a possibility that hyperinflation will occur.
How the Pandemic Impacted Currency Printing
The COVID pandemic is an event that has changed the way that our world works. It’s not unrequited to say that this virus will affect our economy for the next few years or maybe even a decade a two. The immediate onset of the pandemic was quite sudden, and most of us had to stay indoors due to the lockdowns that were put into place in many countries around the globe. This meant that a ton of businesses had to shut down or lay off their staff. Companies aren’t getting the business, and to keep their profit margins high they’ve resorted to firing their employees. Smaller businesses have been hit the worst because they don’t have the funds to weather massive financial loss. Because of this, there is a huge spike in unemployment and the economy has suffered. The Spanish flu that occurred during the 1920s was the cause of the great depression that started after this pandemic. Although it is not possible to say exactly how the current pandemic will affect the economy it is clear that the economic loss will be great. As a result, we’re likely going to see a depression in the coming years.
To combat this, a few countries have started to print more money to keep their economy stable. The first country to begin this was also the country that was first impacted by the virus, China. When the pandemic was first declared it was clear its impact would be massive. This was especially true for industries that rely on customers coming into their stores. China has been printing extra money to boost its economy for a while. There was a large economic stump in China that happened at the beginning of the pandemic. There was well over a trillion yuan that was printed to deal with this slump and provide more money for the economy.
Many other countries followed in this manner and started printing more money to sustain their economy. The USA has been one of the countries that got hit the hardest by this pandemic and thus they have printed a large amount of money. Now there is a high chance that there is going to be another depression that occurs after the current pandemic. The last major depression that occurred was the great recession that started in 2009.
The beginning of 2009 marked one of the largest economic depressions in human history. The drop in the rates of real estate causes the US economy to go into a great recession. The effects of this recession reverberated all throughout the world and even countries that didn’t enter into a depression still had their average GDP go down. This caused many different effects the foremost of which were seen in the US housing system. This crash caused the system to have a huge drop and the real estate industry has still not recovered from the impact this caused. Interestingly, this recession was the worst economic depression that was seen since the great depression that struck the world in the 1930s. This depression was triggered by the Spanish flu, which was a pandemic that wiped out a significant portion of the population. The economy managed to grow back eventually but this depression has left a significant mark on the world and it will never be forgotten.
The current pandemic has already caused any country to print more money to evade this type of depression. However, excessive money printing can cause hyperinflation, and thus, it is important to see that this doesn’t happen. But what exactly is hyperinflation? And why is it so bad for the economy?
Hyperinflation and the Dangers it Poses
Money printing helped to play a huge role in the recovery of the economy. However, one of the main downsides to printing paper money is the fact that it can inflate easily. When there is a massive depression or another financial crisis, one of the ways to make up the deficiency that comes about is to print more money. This is done as a way to revitalize the economy. But precautions need to be taken to ensure that hyperinflation doesn’t happen. Hyperinflation is when there is an excess amount of money in circulation. As a result of this, the prices tend to rise as well. Thus you get a situation where prices are rapidly increasing, and in order to keep up with this demand, more money needs to be put into circulation. Eventually, you get to a point where the value of money drops so low that it causes the national economy to come close to a complete collapse.
One example of this phenomenon is the fall of the Venezuelan bolivar. This country relied heavily on oil for a major bulk of its trade. This was mostly due to the fact that Venezuela had access to high reserves of oil. The price of oil had always been rising and falling, but the country’s reliance on this formed cracks in the economic state of Venezuela. Therefore when the price of oil rapidly dropped it caused major domestic deficits. Thus the government started printing a lot of money to pay off these deficits. However, the only effect that this had was to cause hyperinflation. The Venezuelan bolivar became essentially worthless in the country and thus in order to buy simple amenities the citizens needed to pay tens of thousands of bolivars. This combined with the lack of supplies caused a massive economical crisis in Venezuela.
Another example of this is that of the Zimbabwe dollar. In the 1980s this dollar had a value that was nearly equal to the US dollar at the time(1.25 ZD for every single USD). However, after that, there was rapid inflation and the value of the money began to drastically drop. This was partly due to corruption that was rampant in the country as well as failed land reforms. Thus there were many domestic debts that needed to be paid off. In order to do this, the Zimbabwean government at the time started to print large sums of money. There were no precautions taken to reduce hyperinflation that was happening so the value of the money kept dropping. You might have seen a picture of the famous 100 trillion Zimbabwean dollar bill and the reason it was created was because of this inflation. Eventually, the government had to scrap this bill and replace it with the new Zimbabwean dollar. A similar situation could also be seen in the hyperinflation that occurred during 1923 in the Weimar republic.
There were many factors that contributed to these situations, but the fact is that hyperinflation can occur very easily. This can drastically damage the economy of any country. If the economy of a country cannot fix its hyperinflation or ensure that it doesn’t happen then the value of the currency will tank. The Zimbabwean dollar had to be scrapped because the hyperinflation had become so severe. The threat of hyperinflation is one that threatens any economy that relies on paper money. Therefore there has been a lot of study into how countries can improve their economy without causing hyperinflation.
Is it Possible to Evade Hyperinflation?
The main reason why hyperinflation happens is because of an excess of money which causes the value of the currency to drop. Now in order to minimize the risk of hyperinflation, you need to figure out a way to improve the economy without printing vast sums of money. One of the ways to do this is by using quantitative easing. This quantitative easing is a term that refers to a type of monetary policy in which central banks will invest more money into long-lasting securities that will revive the economy and help to promote trade. These securities can be in the form of public debt or other things that are similar. Long-lasting securities are a much better way of ensuring that the economy stays on the right track due to the fact that these securities do not rely on excessive money printing to replenish the economy. This essentially keeps the value of the currency stable. However, many factors need to be taken into account for quantitative easing to be put into place.
Another way to avoid hyperinflation is to use an alternative source of currency. There are many other sources of currency that people have started to use more frequently in recent years. For example, gold, silver, and other costly materials offer a way to store money without having to worry about hyperinflation. This is mainly because gold has a price that is based partially on the international value of gold and thus it will not cause hyperinflation.
In recent years digital forms of currency like Bitcoin, Ethereum, and Litecoin have been gaining more and more traction. The value of these currencies has rapidly increased and there is a likelihood that they will go higher in the future. These digital currencies will never face the issue of hyperinflation because their value is much more fluid than that of the physical banknotes. Additionally, these currencies have values that are dependent upon the international economy which means that it’s not possible for the government to print more bitcoin to pay off domestic debts rapidly.
There is a clear digital shift that is happening, and it is predicted that Finland will be the first country to become cashless in the next few decades. It’s interesting to note that this digital shift could mean the end of banknotes as a means of currency however a change that drastic is not likely to happen in the near future. There are many clear benefits to a digital form of currency and the current crisis has shown us that shifting our money into an online space might be better for the economy as a whole. Thus many people are buying these currencies to avoid the repercussions of a bank collapse that could be triggered by depression.
Final Words
Currency is a huge part of our lives and it has been this way for many years. From the time that the first banknote got printed in china till now we have used a physical form of money for the majority of our transactions. Although the invention of the banknote was indeed revolutionary the major issue with this type of currency is hyperinflation. Hyperinflation can cause the value of currencies to drop immensely and when this happens the country’s economy suffers heavy losses. The current pandemic has seen a rise in the amount of money that is being printed which could lead to hyperinflation. This is why many people are buying digital currencies to avoid this.
Because of this risk, we’ve started to use other approaches for storing money. Sources of money like gold, silver, or other similar items are able to give us a form of hard cash that doesn’t rely completely on the value of the currency. This ensures that the risk for hyperinflation goes down for the country as a whole. It is likely that a lot more countries will switch to this digital approach in due time. There are also many other forms of currency like Ethereum, Bitcoin, and Litecoin that offer a digital form of storing your currency without having to deal with the economic issues that come with regular money. These digital forms are able to be regulated without much effort. Additionally, blockchains offer more security as these digital spaces tend to give more flexibility.
The economy of our world is rapidly changing. Although it is not possible to tell exactly what the future holds, using these alternative forms of currency is highly beneficial to the economy of many countries and their citizens.
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