The history of money

When it is asked what money is, the answer is often that it is a means of payment. Money is indeed that, but also much more. Where did money originate? What exactly is it?

 

According to classical monetary theory, money has three functions. Firstly, it is a means of payment, i.e. it is used to pay for purchases. Money is also a measure of value, i.e. all commodities on the market have a price expressed in money. It is less often remembered that money is also a store of value; it is the wealth of its owner.

In essence, money can be divided into three types, i.e. commodity money, which is used in barter, precious metal money, and fiat money, whose value is based on a contract or decision.  

Timeline

Prehistory

Precious metal has been used for payment and decoration for at least as long as humankind has had a written history: in ancient Egypt and Mesopotamia, precious metal was already being used as a medium of exchange. In practice, payment was made with pieces of precious metal of different weights and sizes.

Commodity money has been used everywhere. The best-known example of commodity money is salt. In Northern Europe, due to the cold climate, it was natural to use furs as a means of exchange. The Finnish word for money (raha) originally meant the skin of a fur animal, especially a squirrel (from the Iron Age, i.e. around 500 BCE).

650s BCE.

Besides commodity money, the first money consisted on coins, pieces of precious metal of standard sizes and weights, bearing an official stamp. With the stamp, the ruler through his reputation guaranteed the weight and content of the precious metal so that the coins did not have to be weighed every time a transaction was made.

The first coins were minted in Lyydia in Asia Minor around the 650s BCE. Lyydia was located in what is now western Turkey, and the first coins were made of electrum, a naturally occurring alloy of gold and silver.

Image: Lydia, 1/3 stater, approximately 630 bce

Mid-6th century BCE.

The first coins made of pure gold were introduced in Phoenicia as mining technology developed.

260s BCE.

Rome received its first money. The area in which Roman coins were used was remarkably wide due to the spread of the Roman Empire. Coins can also be said to be the first mass media, because the images in them made the cultural landscape clearer.

Image: Rome, denar, 86 bce.

8-9th century

Paper money is introduced in China. Paper money arrived in Europe a few centuries later.

Image: China, 1000 cash paper money, 1368–98.

12th century

Money was first minted in Finland in the 12th century. This consisted of copies of Byzantine coins brought into the country by the Vikings.

15th century

State money was minted in Finland for the first time in the early 15th century, when örtug coins were minted in Turku. Minting of coins in Turku was intermittent.

Image: Turku, Finland, örtug, 1448–1470.

16th century

Gustav Vasa harmonised Sweden’s monetary system when the thaler was introduced in 1534.

Image: Sweden, riksdaler, 1542.

17th century

Sweden was a major copper producer, and to increase domestic demand for copper, coins began to be minted from copper. Since the value of precious metal coins depends on their weight and copper is a comparatively low-value precious metal, money became very large. The largest plate money weighed 19 kg. Plate money was a major reason for the widespread adoption of banknotes.

Image: Sweden, 1 thaler, 1748.

1661

The first modern banknote was issued by Stockholms Banco in Stockholm, Sweden. These banknotes were also been used as means of payment in Turku.

Image: Sweden, 10 riksdaler, 1666.

1809–1811

The Finnish War led to the creation of the Grand Duchy of Finland. The currency became the Russian rouble. On 12 December 1811, the Bank of Finland was founded to issue kopeck banknotes.

Image: Finland, 50 kopecks, 1815.

The first banknotes issued by the Bank of Finland were denominated in kopeck.

1840

Russia (and Finland) introduced silver standard and Swedish banknotes circulating in Finland were withdrawn.

Image: Finland, 5 roubles, 1841.

1860

Finland received its own currency unit through an Imperial Manifesto issued on 4 April 1860. Markka was designated as the name of the currency.

Image: Finland, 1 markka, 1860.

1878–1915

Finland joined the gold standard in 1878, but abandoned it in 1915 due to the turmoil of the First World War.

Image: Finland, 500 markkas, 1878.

1926–1931

Finland rejoined the gold standard in 1926, but the system had to be abandoned in 1931 due to the worldwide Great Depression.

Image: Finland, 100 markkas, 1926.

1999

Finland joins the euro area, and the euro is introduced as an account currency.

2002

Euro banknotes and coins are introduced.

Image: Euroarea, 20 euro, 2002.

From 2013

The new euro banknote series was introduced one denomination at a time.

A third series of euro banknotes is planned. The timetable for its introduction has not yet been decided.

Frequently asked questions