The History of Money: Before Coins, Before Banks, And Whats Next?
History of money creation explained: from state IOUs and banks to QE-era finance and crypto. Understand how money is made—and what comes next.
Money is not just “stuff” we trade. It’s a permission system: who gets to buy now, who must wait, and who carries the risk when trust breaks.
The modern surprise is that most money is created mid-transaction—not in a mint, but currently a bank approves a loan and credits an account.
That makes today’s central tension brutally simple: money has become easier to create than the real things it claims (homes, energy, labour, land), and every upgrade to money creation has shifted power toward whoever runs the pipes.
We’ll narrow the window to the most decisive arc: from state IOUs and early central banking to post-1971 fiat money, then into QE-era balance sheets and crypto’s attempt to rebuild money as software.
Key Points
Money is a trusted claim on goods and services; its “backing” is ultimately the enforcement and tax capacity behind it.
A decisive early model wasn’t coins but state-recorded debt—claims that became transferable and tax-payable.
Central banks scaled money by centralising credibility and settlement, culminating in the Bank of England’s state-banker role.
Modern money is mostly bank deposits, created when banks lend—not primarily when central banks “print”.
The post-1944 system tied global money to the dollar and the dollar to gold—until that anchor broke in 1971.
QE changed the composition of financial assets by creating central bank reserves to buy bonds, pushing down long rates and shifting incentives.
Crypto challenged the “issuer” model by making issuance rule-based (protocol) and verification decentralised (network).
The next battlefield is not whether crypto “wins”, but which parts get absorbed: stablecoins, tokenised deposits, and retail/wholesale CBDC experiments.
Background
Before money was sleek, it was messy: coins clipped, weights argued over, and distance turned “payment” into a weeks-long problem. States needed revenue and war finance; merchants needed settlement that didn’t depend on hauling metal.
The core actors were predictable: governments seeking dependable taxation and borrowing, banks seeking profitable lending and privileged access, and households trying to store value without being ruined by debasement, default, or panic.
Two systems were already in motion by the time “modern money” emerged: state credit (tax-backed promises) and bank intermediation (turning illiquid loans into liquid claims).
A society’s money becomes decisive when it is the easiest thing to accept and the hardest thing to refuse.
The Origin
A decisive origin point is the shift from money as metal to money as organised trust—state-recognized claims that could circulate because they were enforceable and useful for taxes.
In England, tally sticks illustrate the logic: a recorded obligation, split into matching halves, that could become transferable and effectively monetary because the state would accept it. It’s an early proof that “money” can be a durable record of debt, not a shiny object.
Central banks then industrialised this trust. The Bank of England’s founding as banker to the government made credibility scalable: the state could borrow more predictably, and the financial system gained a settlement anchor.
Once money is a system of recorded claims, the question becomes who is allowed to write the claims—and under what constraints.
The Timeline
Pre-Medieval: Money Before Coins (and Why Coins Took Over)
Long before anyone carried a wallet, money was mostly an accounting technology. In the earliest cities of Mesopotamia, temples and palaces tracked obligations on clay tablets—grains owed, labour due, and silver promised—so value could be measured, stored, and enforced even when nothing physical changed hands. One vivid tell is how often surviving tablets read like spreadsheets: balanced accounts of barley deliveries or lists of silver payments to named people.
What mattered wasn’t metal, but standard units. Barley worked as a practical baseline because it was storable and central institutions controlled large stocks; silver worked as a higher-value reference because it could travel and compress wealth. Together they solved the same problem: turning messy, local barter into transferable claims that could survive time, distance, and disagreement. Credit sits at the centre here; money begins with "who owes what," made portable by record-keeping and enforcement.
In ancient China, a different material solved the same trust problem: cowrie shells. Their value came from their recognisability, relative scarcity, and social prestige, making them useful for tribute, gifts, and exchange long before formal coinage became dominant. Over time, the idea of a “standard shell” becomes so entrenched that replicas appear—proof that what people really wanted was the unit, not the original object.
Coins arrive late, and they arrive for a blunt reason: scale. Once states needed to pay soldiers, collect taxes, and settle accounts across wider territories, weighing metal every time became a bottleneck. The breakthrough in Lydia is not “gold as money” but stamped metal as certified weight and acceptability—a shortcut that turns trust into a portable object. From there, coinage spreads rapidly because it reduces transaction friction and makes state finance more legible.
Imperial coinage then reveals a permanent feature of money: the issuer can change the rules. Rome’s long monetary story includes repeated episodes where precious-metal content shifts under fiscal pressure, reminding everyone that money is never just a neutral medium—it is also a policy instrument tied to legitimacy, taxation, and military capacity.
This pre-mediaeval world locks in the central pattern: money evolves fastest when institutions need to mobilise resources quickly, and every improvement in “portability” tends to strengthen whoever controls the ledger, the stamp, or the enforcement.
Debt Becomes Portable (Medieval–Early Modern)
On the ground, daily life ran on credit long before it ran on cash; obligations travelled through communities as surely as goods did.
The mechanism was record-keeping plus enforceability: a claim mattered if courts, the crown, or custom made it collectible, and if the state would take it for taxes.
The constraint was scarcity of trustworthy settlement media over distance. When coins are rare, heavy, and easy to cheat, societies build money out of records.
This phase quietly hands capacity over to whoever controls the ledger—first the state, then institutions that specialise in keeping promises legible.
Central Banks Turn Credibility into Infrastructure (1694–1800s)
The shift on the ground is subtle but enormous: government finance becomes routinised rather than episodic, and markets start treating “the state” as a continuous borrower.
The mechanism is institutional privilege: a central bank tied to the state can consolidate trust, standardise notes, and stabilise settlements.
The constraint is legitimacy: notes only circulate if people believe redemption or acceptance will hold in stress.
As note issues and regulations tighten, monetary authority becomes less local and more national—efficient, but also more politically consequential.
Gold Standards Discipline, Then Strain (1800s–1940s)
On the ground, gold convertibility imposes a hard psychological rule: paper is “real” because it can be swapped for metal—until it can’t.
The mechanism is constrained by convertibility: money growth is forced to track reserves and external balances, tightening policy when gold drains.
The constraint is war and mass politics. Total war finance and welfare-era expectations collide with a system built for smaller states and slower economies.
This phase locks in the idea that monetary order is geopolitics: whoever anchors the system exports their rules.
Bretton Woods Builds a Dollar World (1944–1971)
Postwar predictability brings about changes on the ground: the management of exchange rates, the expansion of trade, and the dollar's emergence as the settlement language of global commerce.
The mechanism is a layered promise: other currencies peg to the dollar, while the dollar is convertible to gold for official holders—an arrangement that works while confidence holds and US policy remains credible.
The "gold window" problem serves as the pivot: when foreign dollar claims surpass the gold reserves that sustain the promise, the system becomes politically unstable.
In 1971, convertibility ends and the regime shifts: money becomes fully fiat at the global core, and monetary policy becomes a tool of domestic management as much as external discipline.
Modern Money Is Mostly Bank Deposits (1970s–2007)
The big change is that “money” becomes overwhelmingly electronic and bank-issued: deposits, cards, and interbank settlement replace cash for most economic activity.
The mechanism is loan-driven creation: when banks lend, they create a deposit—new spendable money—while capital, regulation, and profitability limit how far this can go.
The constraint is confidence and risk management. Banks can create claims quickly, but they can’t create solvency; crises appear when asset values wobble or funding runs.
This phase makes credit cycles synonymous with money cycles—and ties housing markets, leverage, and inequality to monetary plumbing.
QE and Balance-Sheet Money (2008–Present)
On the ground, the crisis response changes the feel of money: rates sit low, asset prices inflate, and central banks become dominant actors in bond markets.
The mechanism is asset purchases financed by reserve creation: central banks buy bonds, swapping them for reserves, aiming to lower long rates and support demand.
The constraint is transmission and politics. QE moves through financial channels first, and its side effects—distributional tension, fiscal-monetary blur, and credibility questions—become the story.
This phase matters because it normalises a new fact: in a crisis, the state can rapidly redefine the asset side of the financial system without printing physical cash.
A money system that can be expanded in minutes will be judged by what it inflates first: trust, output, or resentment.
Consequences
Modern money creation immediately increases the elasticity of economies by enabling banks to extend credit for growth and central banks to stabilise panic more quickly than a world limited by gold could.
The second-order effects are the price: debt-heavy systems amplify booms and busts, and the boundary between monetary policy and politics becomes porous whenever asset prices and housing affordability become public obsessions.
In the longer run, the system hardens into institutional habits: inflation targets, lender-of-last-resort doctrines, deposit insurance, capital rules, and now a growing regulatory perimeter around digital money-like instruments.
When money is mostly credit, every argument about “the economy” becomes an argument about who receives credit, on what terms.
What Most People Miss
The most significant misunderstanding is thinking the central bank “prints” most money. In practice, the day-to-day money supply is largely bank deposits created through lending, with the central bank steering conditions and acting as the settlement backstop.
Cryptocurrency’s real challenge isn’t that it’s “alternative money.” It’s that it tries to relocate trust from institutions (banks, states, courts) into protocol rules and distributed verification—which changes where failures show up: not as inflation, but as hacks, runs on stablecoins, governance disputes, and regulatory choke points.
The next decade will be less about replacing fiat and more about a tug-of-war over interfaces: wallets, stable settlement assets, and who is allowed to connect to the payments bloodstream.
What Endured
Money still runs on trust under stress, not elegance in calm markets.
States still defend monetary sovereignty because tax collection, sanctions power, and crisis management depend on it.
Credit still concentrates where collateral is easiest to value—especially property—unless policy fights that gravitational pull.
Networks still centre around liquidity hubs, even when the ideology claims decentralisation.
And every “new money” still has to answer the old question: who absorbs losses when optimism meets reality?
The limits do not disappear; they simply migrate to a new layer.
Disputed and Uncertain Points
Some historians emphasise state taxation capacity as the core driver of money’s acceptability, while others stress commodity convertibility and market conventions as the decisive anchors.
The extent to which gold standards “caused” stability versus simply reflecting broader institutional discipline remains contested, because crises often involved banking and fiscal weakness as much as metal scarcity.
Some historians interpret 1971 as an unavoidable correction to an unsustainable promise, while others view it as a political decision that paved the way for decades of monetary experimentation.
QE’s effectiveness is debated: supporters stress crisis prevention and demand support; critics stress asset-price distortion and the difficulty of clean exits without fiscal consequences.
Whether crypto is “money” or “speculative asset technology” depends on which function you prioritize—medium of exchange, unit of account, or store of value—and the answer varies by token and country.
Uncertainty is not a flaw here; it’s a map of where power and risk are still being renegotiated.
Legacy
The legacy is a world where money is mostly software claims managed by institutions, and the political struggle is over who gets to issue, verify, and freeze those claims.
Crypto did not create digital money; it revealed the possibility of rewriting the rules of money, even beyond the initial state draft. Central banks and regulators have responded by pulling parts of crypto into supervised categories (especially stablecoins) while exploring state-backed digital complements, including a digital pound design phase running through 2026.
The concrete institutional habit that follows is regulatory convergence: money-like things get treated like money when they get big enough to matter, especially if they promise stability.
