Money can be almost anything. In many ways, money is a way of keeping score: a way of showing how much of something you can purchase.
Through the years, money has been represented by beads, stones, metals or glass, depending on the culture. It was a way to barter for goods without needing to actually store and transport those goods immediately. The concept of money became particularly useful related to perishable goods, such as food.
The History of Money
The key problem with barter is that if you specialize in making a single type of goods, you can’t always exchange those items for the things you need. If, for example, you are a shoemaker, a fisherman might not want to exchange five pounds of fish for a pair of shoes if that he already has footwear. Another way of exchanging goods had to be found.
The base goods for early monetary systems had to be something constantly desired and stable. It also had to be just rare enough so that value wasn’t diluted within the system. In some cases, the good used was salt. In most cases, it was bronze, gold or silver.
Cities and the Rise of Modern Currency
It was primarily through the ideas of cities that true currency became possible. The government (a king, chieftain or another figurehead) would arrange for something to be considered as currency, normally something that had an intrinsic value.
Because coinage was intrinsically valuable, it could be exchanged almost anywhere, even if it had another figurehead on it. This meant that coins minted in Britannia (modern-day Britain) could be traded with Roman, Greek and Phoenician traders, who were mostly based in the Mediterranean. The intrinsic value of the metal made this possible, even without official exchange rate mechanisms.
Gold as Money
Several millennia later, gold still remained a key way of backing up currencies, in many cases with actual gold coins still in circulation. However, the idea of currency having intrinsic value gradually fell out of favor, particularly with the proliferation of notes. Currencies were watered down, with much cheaper base metals replacing silver and gold. This made economic expansion hard to control.
Instead, gold was eventually used solely to back currencies. The idea is that each currency has something physical behind it — something that has value rather than just a randomly determined figure. This concept is still used, although with a much wider range of goods than just gold.
U.S. gold reserves today amount to approximately $11 billion. More important to modern national currency valuation is the value of the U.S. economy. Instead of being pegged to a physical product, the value of currency is pegged to the value of the people within the country, their spending power and production.
This is subject to sudden fluctuations, as has been seen with multiple recessions, hyperinflation and other economic crises various nations have faced in recent years. For this reason, gold offers the best stability in terms of actual value, as the physical product still has intrinsic value. Experts say that this stability makes gold the best money.