In an indelible New Testament story, two travelers reach Capernaum, on the Sea of Galilee, and are expected to pay a tribute tax. Jesus tells Peter to cast his line into the water and guarantees the first fish to bite will have a coin in its mouth. It was likely a four-drachma Greek coin of silver, although bronze shekels from Tyre, one of the most prolific ancient mints, also were in circulation at the time.
The Gospel of Matthew story offers a rare exception in the annals of currency. Throughout most of history, currency has been produced not by miracles but by brutal toil and help from machines. Even today, after 475 years, Bolivian miners delve deep into Cerro Rico de Potosí for silver. Meanwhile, at locations around the globe, large arrays of computers grind away on the calculations that produce cryptocurrencies, which seem to offer potential riches for all of mankind.
“For the love of money is the root of all evil,” St. Paul says elsewhere in the New Testament. This love plays out in the Netflix series, “Money Heist,” in which a band of robbers takes over the Royal Mint of Spain’s presses for the private printing of hundreds of millions of Euros.
Some may surmise their crime would seem to justify the ill repute of money. On the other hand, without spending, trading, and speculating, where would economic progress come from? In “The Ascent of Money: A Financial History of the World,” Niall Ferguson argues, “Despite our deeply rooted prejudices against ‘filthy lucre’ … money is the root of most progress.”
Indeed, the need for currency emerged in antiquity, when traders bartered commodities such as salt for weapons or gems. In North America, 17th-century trappers brought furs to trading posts in exchange for knives, cookware, and blankets. It was a clumsy way of doing business, but the bartering practice that started around 6,000 B.C. continues today. In December, Sri Lanka, owing $251 million to Iran for oil imports, agreed to pay off Tehran with supplies of tea.
The inefficiency of bartering was addressed ages ago in Babylon, when accounts were inscribed on clay tablets, stipulating, for example, that the bearer would receive 300 measures of barley at harvest time. Such tablets, Ferguson points out, serve as “reminders that when human beings first began to produce written records of their activities, they did so not to write history, poetry, or philosophy, but to do business.”
Five millennia passed before the expeditious development of coins. Metal tokens were used around 1,000 B.C. in China, but it was the Greeks who stamped out coins of electrum — the naturally occurring gold-silver alloy — by 650 B.C. In the early Middle Ages, the emperor Charlemagne introduced silver pennies that served for more than 400 years as Western Europe’s standard currency.
Precious metals were scarce until the 15th-century exploits of Europeans in the New World.
Cerro Rico produced 45,000 tons of silver for the conquering Spanish, at great cost to life and limb among the enslaved miners. Spanish “pieces of eight” coins flooded Europe, causing unprecedented price inflation. Metal coins, it was then discovered, were worth only what could be gotten with them. And large quantities of coins were cumbersome.
Paper banknotes, first used in China, eventually became the standard currency in Europe. For example, the Bank of England’s pound notes that could be redeemed for specie, or precious metal, first appeared in 1694. Paper notes also spread across the United States, for better or worse.
For example, after gaining statehood in 1837, Michigan went through a “wildcat” banking period when four dozen new, lightly capitalized banks popped up. The Bank of Shiawassee issued its $3 bills from a shack in a forest clearing; the Farmers Bank of Sandstone was at a quarry. Many banks issued notes by the same printer, whose engraving limits led to reusing the same panther image. “It was the custom for each bank of issue to send its money as far from home as possible to be circulated, in the hope that it would never be returned for redemption,” historian George Catlin writes. Soon, wildcat money was synonymous with worthlessness.
In 1862, the United States note, known as the greenback, was introduced by the Treasury Department in nine denominations up to $1,000 — essentially a “fiat” currency issued by government decree. It was made redeemable for specie in 1879. Even after the Federal Reserve note came out during the Great Depression, greenbacks continued to circulate — and to be redeemed under specific conditions — until 1971.
Technology has since intervened, making it customary to use credit and debit cards. More recently, as an alternative to pulling out the plastic, there are digital mobile-pay systems. These vary from centralized transfers like Apple Pay and Google Pay to peer-to-peer systems like PayPal and Venmo, apps that enable the transfer of currency between parties.
Most fascinating is the rise of extra-governmental, blockchain-based cryptocurrencies such as Bitcoin and Ether, launched in 2008 and 2013, respectively, and now exceeding $2 trillion in value. Bitcoin is “mined” by linked computers that strive to solve cryptographic puzzles and add links to the blockchain, thereby earning new “coins.” Historian Niall Ferguson calls it “a type of digital gold.” The Central American nation of El Salvador has adopted Bitcoin as legal tender. In Africa, Rwanda and Kenya are exploring the issue of digital currencies.
What’s more, the combination of digital and cryptocurrencies with decentralized finance — DeFi — introduces the potential for exchanges in parts of the world where 1.7 billion people have little or no access to banking services.