History of Monetary Systems

Ancient civilizations like Mesopotamia used grain and livestock as money. The first metal coins were minted in Lydia around 600 BCE. Surprisingly, early Chinese societies used tools like spades and knives as currency before coins.

The medieval period saw the rise of banking families like the Medicis, who innovated with bills of exchange. This period also introduced the concept of fractional reserve banking, laying the groundwork for modern banking systems.

Adopted in the 19th century, the Gold Standard linked currencies to gold. However, during World War I, many countries abandoned it due to its inflexibility, leading to economic volatility and eventually the Great Depression.

The first central bank, Sweden's Riksbank, was founded in 1668. Central banks gained prominence with the establishment of the Federal Reserve in 1913, aiming to stabilize the financial system and manage monetary policy more effectively.

Post-1971, the world shifted to fiat currencies after the US ended the Gold Standard. Modern monetary policy now focuses on targeting inflation rates and managing economic cycles through interest rates and quantitative easing.

The island of Yap used enormous stone disks as currency, some weighing up to four tons, which were too heavy to move.