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Earliest form of financial transaction from about 11,000 years ago. Goods would be exchanged. Problems arose from one party not needing what a second party was offering. Also if livestock were being bartered then a disease could wipe out entire wealth. Grain which was to be exchanged could also spoil. There was no fixed exchange rate - e.g. 1 pig = 10 chickens.
For all of its drawbacks it is the financial system which has stood the test of time the longest.
Money was introduced as a method to pay for things. Not coins but tokens made of precious or semi precious metal. These were used to pay fines for wrongdoing or compensation if things were bought. There was no control over the amount of money though, and people could make their own wealth by making more tokens.
Once people got used to the idea of money then money boxes were introduced about 3,500 years ago as people saw the value in saving for the first time.
The first coins were introduced in Greece and China. They were made of precious metal and were stamped with a symbol which set them aside from the tokens which had been used so far. This made money more more difficult to forge. The symbols were often rulers and this gives us an insight as to just what these people looked like!
Coins were heavy and as peoples wealth grew it was more and more difficult to transport wealth. Paper money was introduced in China to replace large amounts of coin. The problem though was a lack of confidence in the new system. Coins had an intrinsic value as the were made of silver or gold but paper money ha no value of its own.
Designs had to be very ornate to prevent forgeries.
Goldsmiths were jewellers who specialised in making things out of precious metals. They had vaults on their premises which were guarded 24 hours a day. They began to offer a service whereby they would look after peoples money for a small fee - in effect they were the first type of banks.
400 years ago the Bank of England was formed. There were still problems with confidence in paper money. To overcome this the Bank introduced the Gold Standard. This meant that people could exchange their paper money or coins for their value in pure gold. This lasted until the 20th century.
We had a strange currency system up until this point. There were 20 shillings in a pound and 12 pennies in a shilling. Guineas, which were 21 shillings, were also used. In 1971 we changed to the current system where we had 100 pennies in the pound. This brought us in line with other major countries who had 100 small units in one larger unit.