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Journey of Money - From Cavemen to Crypto Coders.

Updated: Mar 23

From exchanging sheep in barter for a sack of rice, to creating digital currency - money, much like human beings, has had an eminent and turbulent journey over the last few thousand years since we humans have started engaging in commerce.


My efforts in penning down these columns have been mostly biographical, which is my own learning journey. And making an effort to write down what I learn is my way of sticking my neck out to complete full learning circles. This too has a similar bearing. While I have spent a significant part of my career contributing in the fields of banking, technology, finance and academia, this thought has always remained in me, as why so many of us know little about evolution of money, when we spend much of our daily time in dealing with a variety of their forms that exist today.

It’s such an interesting story to paint, as so much has happened over this one fictional commodity that pans across the stretch of our existence as humans. For those of us who have read “Sapiens” by Harari, (a delightful book and highly recommended), he has this thesis that everything that’s surrounding us is a story. Humans are story telling monkeys and this idea that we can unite each other by telling and believing in stories, makes us the most powerful creature, as we are the only animals who can unite within cross genetic boundaries telling each other stories. Corporations being stories, governments being stories and so too money is a story. Over this single most important fictional nonliving character as money, epics have been written, wars have been fought, institutions and individuals have made fortunes and the rich have become paupers too. The story of money is also a saga that spreads the complete length of time from the origin of barter system in the hands of cavemen, to the goldsmiths & shylocks of Rome, right up to the current times when we talk of legacy banks vs challenger banks trying to get their share of pie from the same universe of money.

“If you can’t explain something simply, you have not understood it well enough” - Einstein

I have often wondered, as why can't the evolution of money and the intermediary reasons of transformation from one form to another be explained rather simply. Quite like Friedman did in one of his lectures of mathematics when he captured the essence of numbers, arithmetic, algebra, statistics and calculus in just two pages, logically relating one to other and how from numbers we progressively and logically move to the other functions of math. In a similar way, this essay will be an effort to rewind human history, and see how the story of money has evolved over time. And at the end, if we can connect all the dots together to logically relate each story, I am sure we will understand money a tad better. And in doing so we will also travel this journey that money has made so far from from being just a notion of value in the minds of traders engaging in the old barter system till recent times, when money in its next avatar is envisaged to be a few bytes of code virtually hosted on invisible servers.

But before we reach our contemporary digital era , it will be interesting to recap the journey that money has undertaken from the times of barter system, up to our current times where the existence of fiat currencies are now being challenged by a new form and that is cryptos.


The day “barter” was born - Must have been one of those ordinary days in the lives of the cavemen, more than a hundred thousand years ago when in a stormy evening a man was sick and could not go out hunting. As he laid on dried grass, hungry and gazing at the ceiling of his cave, he heard noises from a hunting party that had just returned and were feasting by the fire just outside his own cave. The roast must have smelled delicious forcing the man to come out carrying his freshly carved out elephant bone weapon. As he approached the feasting group of men, women and children, they shivered at the thought of an inevitable fight that would decide who had dinner that evening. Some moments passed by, as the starving man stood in front of the gathering, but however, quite on the contrary he lifted his weapon and offered it to the group. The feasting group grunted, took the sick man’s weapon, deeply examined the bony shaft, found it much better than their own. Took the tool, and in return offered to the sick man a portion of the meaty broth they were eating.

Bingo…. thus, occurred the first value driven transaction in human history (that has continued persistently ever since) with no bloodshed. A sick caveman would have got his food in exchange of a weapon that was not as useful for him at the point of time. Not that the same event would have occurred, but some event like this would have definitely happened for making mankind realize the value of exchange, and thus the system of barter was born.

Birth of money from the drawbacks of the barter system - Perhaps the best and the simplest explanation of commodities being used for barter came from Aristotle when he said that - "Every object in the world had two uses - one is its actual purpose, for which it exists, and the second is to use that object for barter. And since there are two uses of every object, potentially everything can be used as money too."

For a long time in human history, barter was the major mode of exchange till societies realized some of the limitations of this mode and therefore they learned to exchange for value rather than commodities itself, and the barter system must have gradually given its place to money? So why wasn’t barter good enough? Because there were two inherent problems in this system, classified as "the double coincidence of wants" problems.

  1. What if one person did not have, what the other person wanted?

  2. Even if one person had what the other person wanted, it should be in excess so that one can give it away.

And this “double coincidence of wants” problem led to money being born as a standardized and stable medium of exchange, the value of which can remain within an acceptable range over a period of time.

However, what makes money, money and why did some forms of money stay longer than others? The answer to these questions are quite vital to understand later, the evolution of digital currencies, as we shall find during the course of this essay.


Money has transitioned through several changes in the way it has been perceived, valued or transacted. While we all take the concept money as granted in today’s world, but money as it is in its today's avatar, was not what it used to be, and if looking at history is also a window to the future, then money shall not be the same in future too.

Of course its impossibly to chart out all forms of money which have helped mankind exchange value over the ages, but here are some of its interesting forms:

  • In ancient Rome for close to a century 'salt' referred as 'salare' was used to pay the soldiers, what was called as 'salarium argentum' or 'salt money'. Not surprisingly, the word salary has its origin from "salt money".

  • In Scandinavian countries, Squirrel fur and Buck skin were used as unit of exchanges for a long time, so no wonder the word "buck" used as a slang for money comes from there.

Man's quest for finding the perfect object as money have many a times taken extreme forms.

  • In Solomon Islands, there was a time when one of the strangest forms of money existed - 'The Rai Stone'. These were stone disks hollowed out at the center, weighing close to 4 tones and were up to 12 feet in diameter. First imagine a four ton stone being hauled to pay for groceries and then compare to our times when money is being targeted to just being a few lines of codes which one may not even carry but download from thin air at any point of demand.

  • In Italy, a special, dry and hard cheese, made out of goat milk, known as Parmesan Cheese, was used as money for some time in history.

  • Ancient Chinese under the Zhou dynasty have also used weapons as money for a long time. The warriors would inscribe their weapons with symbols to indicate the value of their weapon. However over time, this led to a large number of weapons being available with people to indulge in violence, till the Zhou emperor had, had enough and he declared that only small coins with square holes issues by the emperor himself could be used as money.

Over 5000 or more years, various forms of money have come and gone due to inherent issues in how they were conceived because some had inherent problems like aging, some became rarer like animal fur or skin, and some became so high in supply, like weapons which lost their value. Only a few like metal coins stayed on for a long time.

Now that we have referred to metals, lets bring in GOLD as one of the main characters in this story of money. As it still remains one of the money forms and one of the best avenues for storage of value, we shall see how gold's prominence across over time has been instrumental in being the reason for some of the most important turning points in how money has evolved over time.


Gold was one of the earliest metals to be discovered and used by man, however as strange at it may appear, pure gold was hardly used as a popular mode of money for a considerable amount of time because while gold's scarcity added to it value, however its physical properties made it unfit for this purpose till mankind learned to blend gold with other metal forms like copper and silver as alloys and convert them into coins.

Soon in history gold became a standard against which one could measure wealth. Its a matter a self realization as why this would have happened. Imagine this - Gold was rare, very difficult to obtain, and a large amount of resources which needed to be burnt just to extract even a few grams of the metal. Under these conditions, only the rich which were the rulers could mine gold. As a result, great civilizations like the ancient Rome, Persians or the Mughals commanded great power over people once gold and its alloys started getting minted into coins which were difficult to produce in mass and therefore only the governments retained the power to issue and maintain their circulation.

As economists would lay it later - Gold equated well with all the needed characteristics that Money in circulations must have. Gold was safe as a metal to physically hold, was a commodity that ensured storage of value, was long lasting, could be used and reused without corrosion, was portable because it was mailable and ductile, and commanded uniformity, that is any portion taken from any part would be of the same value. In-fact gold for all of these reasons, (in various forms), has reigned supreme for more than 10000 years and is still considered as the best hedge against contingencies.


Because of people's unshakable faith in gold, governments across the world and throughout history have backed economic value against gold. Now gold has been used as a standard in many ways. Lets look at them chronologically.

  • Gold Specie Standard - The first phase of such standardization was tried with coins made of gold and its alloys being circulated in the economy. Termed later as the Gold Specie Standard, this is known to have first started in Turkey.

Picture Courtesy - Pexels

The problem with such a system was that over a period of time, people started scrapping off the edges of the coins and siphon off small amounts of the precious metal. This led to coins losing value resulting in inflation. While the problem was solved by some level of design thinking in having ridges surrounding the edges of coins so that scrapping could be avoided, however a bigger problem still remained.

Over some time of the coins being in circulation the real face value of the coins, diminished compared to the actual value of metals in the coin. As a result people started melting the coins and storing the precious metals instead of the coins being used as a medium of exchange leading to lesser and lesser money being in circulation and thereby causing deflationary conditions

Because of these inherent problems in the Gold Species Standard, most countries like Great Britain, USA, Germany abandoned it during the onset of World War 1, to be replaced by a new standard - The Gold Bullion Standard. And bingo - Currencies as we know them today were born for the first time with the gold bullion standard.

  • Gold Bullion Standard - In this system Gold did not circulate as coins. But the governments expressly guaranteed to pay the bearer of a currency (IOU) an equal amount of gold at a fixed price.

Picture Courtesy - Pexels

However Gold bullion standard came with its own share of problems too. Within this system, people could use such currency guaranteed by the governments within their jurisdiction, but it wasn't as easy when it came to international trades.

Imagine a merchant in India trading with someone in UK. The UK merchant pays to the Indian trader 40K GBP. Now The Indian merchant cant use GBP in India and therefore assuming 40K GBP is equivalent to 1kg of gold, he goes to the Bank of England and exchanges the currencies he has in UK for gold and travels back to India. When he reaches India, he goes to Reserve Bank of India and exchanges this 1kg of gold with the prevailing gold price in Indian Rupee which assume is 46 lakhs.

Its obvious that there would be several problems associated with transferring a commodity as valuable as gold through such long distances by merchants and so someone may decide to ship 50K GBP to India instead and hand over to Reserve Bank of India. At the end of the year the central bank of India would transfer the 50K USD to the central bank of UK and take 1kg gold in return. Anyways, both involved physical movement of gold over large distances, which would not have been devoid of security concerns.

Picture Courtesy - Pexels

This being the reality of this system, it led to movement of physical gold very frequently from one country to another over long distances by ships. If the ships carrying gold sank or were looted, all that wealth was gone. With nothing then left to back the corresponding currencies at home, the countries losing gold, faced perils of uncontrolled inflation. As per todays estimates by the UN, there are anywhere between three to four million shipwrecks on the ocean floors which had gone missing during the gold bullion standard era, wrecked or purposefully sunk, which are even till this day, of interest to underwater divers and treasure hunters.

Picture Courtesy - Pexels

Owing to these reason, by the end of World War 2, the gold bullion system was replaced by the Gold Exchange System. This is also the time since when US Dollar started reigning the world as an international reserve currency. We shall see how.

  • Gold Exchange System - Under this system the Indian merchant would have taken his 50K pounds back to India and exchanged for an equivalent amount of rupees through Reserve Bank of India. RBI in turn would hand over the GBPs to Bank of England. Now instead of gold, Bank of England would give RBI an equal amount of US Dollars. These dollars in-turn were pegged to the value of Gold against a fixed exchange rate guaranteed by the US Federal Reserve to the currencies of every nation. It did not matter if the gold was physically moved from one country to the other. This eliminated a large amount of transportation costs, and security overhead associated with moving physical gold between countries.

How was this achieved?

Picture Courtesy - Federal Reserve

During the course of World War 2, several countries had transported most of their gold reserves to the USA. Once the war was over, a meeting was held to decide as what was to be done with the world's gold reserve now held by the US treasury. This was the Bretton Woods Conference. A gathering of delegates from 44 nations met from July 1 to 22, 1944 in Bretton Woods, New Hampshire, to agree upon a series of new rules for the post war international monetary system. It was decided at this conference that the value of gold would be pegged against the dollar at a fixed rate of USD 35/ounce, and that physical gold would continue to be with US treasury, and countries would trade freely using dollar as if it were gold. If a country really needed physical gold, all it had to do was provide USA with dollars and get equivalent amount of gold at the pegged rate. Thus international trade was thought to be now free from the shackles of Gold Bullion System.

In effect from this period - US Dollar became the de-facto international currency.

And to ensure that this system worked as per the protocol adopted, IMF was established. At the end of a period IMF would take stock of all balance of payments. If country A had to transfer gold to country B, the IMF would record that in the books of accounts. All trades and the move of gold across boundaries were now reduced to maintaining ledgers at the IMF headquarters.

While this system helped the world trade expand greatly, it also (as we shall find during the course of this discussion) would expand the money supply exponentially leading to increase of currencies in circulation. But because amount of gold remained more or less same, the dollar started losing its value so much that the US discontinued the Bretton Woods system and countries could no longer exchange dollar for gold. From which time on Dollar and all other currencies of the world would become fiat currencies. The journey from the last leg of gold standard to currencies becoming fiat is quite interesting and therefore lets look at the events which led to it in a little more detail.


By the end of world war 2, US had about $26 billion in gold reserves, which was about 40% of the world's known gold reserve at that time.

Because of the benefits this system brought to world trade, international commerce expanded rapidly in 50s and 60s, and to help this trade countries printed more native currencies, which led to dollar appreciation and weakening of American exports. To maintain export competitiveness more dollars were pumped into the world market by mere printing of more notes and spending in the international markets via aids, loans or even financing wars.

This led to a dilemma - There were now more notes per ounce of gold compared to when Bretton Woods system was adopted. Ideally in a perfect market condition if demand and supply interactions were to decide the price of gold, then the price of Gold should have increased in US domestic market as it had the world over. But US had a promise to keep. It had to give gold to any country that demanded at a fixed rate of $35/ounce, which led to a strange situation:

Assume gold in open market commands $50/ounce. Any country could buy gold from US at $35 and sell in the open market at $50, making a profit of $15. With more countries dealing in similar transactions, inflow of dollars in US domestic market increased leading to the dollar devaluation in the domestic market.

Very soon US realized that it could not eternally keep printing more for spending in the international markets via aids, loans or financing wars. By 1970s the US gold reserves sank to 22% of the original base, and the dollar was under the risk of imminent collapse. At this point Richard Nixon the then US president did something that was obviously coming, but at the same time astonished the whole world. On 15th of August 1971, he issued an executive order repealing Bretton Woods Agreement. Effectively this meant that the US would, from then on, not give gold from its reserves to any country giving dollars as stipulated by the Bretton Woods agreement.

This was the day when money is considered to have lost its zing !

But not really, as we shall see why....



Its because from this day on it changed the way money was to be used. After 15th Aug '71, no longer was the dollar backed by gold. Then what backed the dollar? What provide value to dollar? "NOTHING". the dollar is not backed by anything. The dollar has value because the government says it does.

From being a bullion backed currency, dollar became a fiat currency overnight. And what got inscribed on currency notes were the words - "This Note is Legal Tender for all Debts, Public and Private.” In other words, it is an I.O.U.

Picture Courtesy - Pexels

And since other currencies were tied to gold via dollar, once when dollar became non-convertible to gold, so did all other currencies. Effectively making all others fiat too.


Travelling this journey so far, has clearly established that money has a dynamic equilibrium, dependent on so many factors. Which is why money is money and its so much important to understand its journey without which any futuristic discussion on where money as medium of exchange is headed to, is quite meaningless. By the time of 1973 oil crises most countries had decoupled their currencies from the gold standard. As we stand today, market forces of demand and supply play a significant role in determining currency exchange rates & interest rates in domestic and international markets.

The more we compare the various stages of evolution of money we see that there is no magical monetary cure. Its crowded by trade-offs and lesser evils. And because fiat currencies are not commodity backed, but only by governments, plus their issuance and management are centralized via a complex network of central and commercial banking system in every nation, there is a lot of skeptism surrounding its existence and alternate thinkers have given this as one of the primary reasons of financial irregularities calling for its replacement by decentralized and permission-less cryptos. Even though criticisms of fiat currency system predates the emergence of cryptocurrencies, but the publication of bitcoin whitepaper in 2008 was a watershed moment. In solving the ‘double-spending’ problem at its core, this whitepaper strived to prove that there could be a global currency without banks being at the center to keep a ledger of all transactions.

2008 and a few years following the year was also a period when some of the most stretched monetary policies were implemented as a result of the financial crisis, the fundamentals of which rests on some of the basic tenets of our fiat currency system. Quantitative easing and negative interest rates created the impression that at some point central banks would run out of tools to prop up a debt fueled economic model. Inequalities in societal wealth and incomes, denominated in fiat currency, drove the rise of populist politics across the globe. However the arguments in favor of such policies are that these outcomes are not bugs of the fiat currency system, but inherent features of it that provides the central banks with needed monetary tool to stitch fiscal gaps in economies. The way how fiat currencies are issued & managed by central banks today, brings in several advantages:

  • Adoption of fiat currencies by nations have made possible large expansion of economic activities. Because pegging a currency against a commodity leads towards a deflationary economy. Why? Because in-spite of increase in economic activity, money supply remains same as the commodity money has been pegged to might not have increased in production. This leads to increasing goods and services chasing a practically constant money supply, resulting in fall in prices, reduced incentives to entrepreneurs and hence deflation.

  • Fiat Currencies have also helped in expansion of money supply. When currencies are pegged to a commodity with fixed supply as its core principal, expansion via credit isn't possible. With the advent of fiat currencies banks started extending credit post 1970s at a much increased pace. Which meant that entrepreneurs could borrow more with a hope of future prosperity, when they would repay their debts.

  • Also its important to understand the methods surrounding our contemporary world of currency issuance and management, as fiat currencies today are a great representation of "record of economic value". And therefore any discussion on its alternate forms (like cryptos), without taking into consideration as how central banks strive to maintain fiscal balances through issuances and circulation of currencies via our banking channel will be less meaningful.

Today approximate 1.9 trillion dollars of commerce happen in the world each day, over an incredibly complex global economic system, and at its fabric, this seemingly complex system disintegrates into a few set of rules that help build trust between two trading entities in how they trade their notion of value via globally accepted tokens which are our fiat currencies, issued by the central banks and recorded by a network of commercial banks. This system is now being challenged for its inefficiencies, and a solution is being proposed in the form of decentralizing its issuance and management so that the onus of enforcing trust is no longer on the issuer and a central registry, but on a distributed network hosted on the internet, where consensus is self managed on the network by people and entities which make the network. Since this challenge is being poised by private networks, it is quite an expected outcome that central banks are now evaluating the options to adopt to this inevitable technological disruption in the form of issuance of central bank digital currencies (CDBCs).

Being strongly convinced about the benefits which centralized currency systems bring, I am more inclined towards CBDCs and not permission-less network of cryptocurrencies as they have no economic rationale. The primary use cases, permission-less network of cryptocurrencies solve are - making the exchange process decentralized, fast and more economic. However as we have realized by now, the various stages of evolution of money over ages have not just rested on transaction ease but also largely - economic stability, exchange and interest rates control, controlling inflationary or deflationary conditions and as well dealing with social imbalances such as unemployment conditions. None of these are even considered at the outer peripherals of permission-less network of crypto use cases.


Its is in considering central banks developing their own CBDCs at scale by the adoption of all advantages which a set of technology stack brings, such as "decentralized ledger", "self executing smart contracts", "cryptography", "immutability" etc. What are the implications of digital currencies for the monetary system? This is a highly significant subject much on the minds of central bankers. Though the interesting fact is that none can say with a lot of conviction as how this future will shape up to be in its end form. Most central banks are still experimenting with prototypes. Some are a tad ahead than the others, however its assumed that it will be a few years till CBDCs can strike maturity. Central banks who have made an early start on this topic, have done so with an intend to understand this implication better on both, wholesale and retail segments and therefore we will have to wait till such outcomes are realized as how they impact us at scale.

In the meanwhile, its imperative for most of us to understand in greater detail what CBDCs are because, depending on the technology used and design choices, CBDCs, once they go mainstream will revolutionize the way currencies are issued, exchanged and payments are settled. As well it will redefine the relationship between the state, the private, and the people.

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