They say if you do not know where you are coming from then you cannot know where you are going. Understanding the way trade and money has evolved over the years will make you appreciate the role of money and the different types of money in existence today. Let’s start by understanding the different business postures which have existed in this world. Some of those postures are old and dead while some are still around. We will start by looking at the historical changes in trading and different currencies used.
First there was subsistence stage, here we produced what we needed and our needs were few. However as life improved and the population increased the subsistence means of production could not produce everything we needed. To get what we did not produce, exchange of what we had with what we needed came into play. For example if I needed an animal skin to make a headgear and did not have an animal to be slaughtered to yield the skin, I went to my neighbor and exchanged the skin with what he or she needed. This exchange is the grandparent of trading.
Once trading came to play, there was a need to develop a measuring system that determined how many goats would be equivalent to a bale of wheat as the two are not like for like and the humanity needed to develop a measuring system. The exchange method lacked standardization and measures and the buyers and the sellers had to bargain to agree on right amount of exchange for each commodity. This wasted time and transactions took long at times days. With these limitations of the exchange system people realized that they needed a more standardized mode of transacting.
People developed some kind of measures by using sea shells, ivory, animal skins among other form of exchanged developed then, this gave birth to business and currency was born. India for example used their spice as a form of trading currency. By then spice was one of the most sought item globally then. Spices were one of the reasons Marco Polo would transverse the entire Europe and Asia while others searched for the shortest way to India by sea. This business became so lucrative and the government of those days started playing part and become more focused on trade as a way of making that extra wealth.
These central governments developed some form of coins which were used by its citizens to pay for tributes and taxes. Precious and other metals were used in making these coins; the amount of the metal used determined the value of the coin. Gold, silver coins started getting into the business. Pirates flourished, if your stole gold coins from merchant ships you could sell them and become rich, they were universal currencies. Security become an issue and it was at this juncture that the governments developed the concept of central banks, here you could deposit your gold and get a receipt for the value. You could use the receipt for transactions; this receipt was and is still known as the legal tender.
The legal tender is what we call money today. The money you have is equal to a specific amount of gold held at your country’s central bank and you can use it anywhere within that country and its value is standardized, i.e. 100 dollar bill has the same perceived value either in New York or Hawaii. Now we have moved further to plastic money. All these efforts were driving to a point where one could get what they want anywhere anytime without much hassle and this is what we call today the marketing posture. There could be no marketing or successful business today without the legal tender.
The legal tender was the core of brick and mortar business. The plastic money is core of today’s on-line business. To ignore the role of plastic money in our present day is a disaster because the customer is not the guy who lives down the street but another person in a foreign country. Let’s all appreciate that we have from far to be where we are today.