Knowing the history of money is important to understand our money today. It all started with communitarian "money" within tribes, followed by coins produced out of precious metals and later private banknotes that finally turned into officially enacted national currencies.
The origin of money and its beginnings are disputed today and can hardly be explained seamlessly. In order to understand where money comes from and what it is, different monetary perspectives mentioned in the previous section are needed. In reality, these disparate views are each likely to be relevant in one form or another.
The beginnings of mankind was shaped by loose grouping of hunters and gatherers and somewhat later by the tribal life. Within a tribal clan, cooperation is static. Any cooperation is hierarchical and every tribe member knows his or her place within the clan structure. There is no cooperation in the sense of discovering, innovative cooperation. Therefore trade plays hardly any role, which is why there is no money in clan structures. Only cooperation between clans (the beginning of a division of labor or rather the allocation of labor) would make something like money necessary. In the beginning, however, these are mainly allocation tokens, which are allocated by the ruler in the respective hydraulic society. Religion, temple and priesthood play a decisive role. Temples and other religious facilities in particular become the first banks.
Over time temples increasingly become centers of trade, since all the idle treasures within temples are used (assessed) for more abstract purposes. Beyond clan borders, the first trade corporations are formed (the Phoenicians probably played a decisive role here). This cooperation among increasingly foreign groups is what makes an abstract bearer of value compelling in the first place. Initially, cattle (a religious background) may have played an important role. Only over time does a raw material develop into a more widely accepted money through the use of traders: gold and silver. Gold in particular is soon stamped with a symbol and thus becomes legitimized by the state authority. It is likely, however, that the precious metal money developed on its own first among traders/businessmen before it was endorsed by state authorities.
Metal money in the form of gold or silver created an independent medium that is subject to the laws of nature and cannot be manipulated by human hands, i.e. it cannot be artificially created. Alchemist experiments show that this has been tried again and again, but has not yet succeeded. Of course, gold money also has disadvantages or rather trade-offs. Especially its transaction costs, mainly transport costs, are immensely high. Out of necessity, the innovative power of traders and merchants proved to be great. During the early Renaissance (in the Italian city-states of Genoa, Venice, Florence) banknotes and bills of exchange developed. The latter then became particularly popular in the Protestant nations of Holland and Belgium. How banknotes and bill of exchanges are connected exactly, and above all who is the forerunner of whom, is disputed in the historic-economic literature.
Bills of exchange are ultimately similar to delivery bills and are paper money maturing into gold coins. A banknote, on the other hand, was often an paper issued by a financial institution, which was also denominated in gold (or even bills of exchange) and in principle had to be redeemed in order to get access to gold or bills of exchange via the banknote. A plausible assumption is that bills of exchange (real bills) developed out of merchant use. Only later banks "annexed" this business in order to make the exchange business more liquid. Evidence backing this assumption may have been the exchange banks (Wiesselbanken), which bought and discounted bills of exchange to improve their liquidity. The banks financed themselves among other things by issuing their own banknotes, whose backing was the asset side of the balance sheet.
Thus, banknotes were and still are an obligation of the respective bank, backed by its assets on the assets side of the balance sheet. For, as a historical analysis suggests, the notes issued by a bank, hence banknote, were not 100 percent covered by deposits from depositors. Deposits from depositors were lent in interest rate transactions, while a small residual amount of reserves was held back as a liquidity buffer. Reserves in this case were mostly gold metal, but also bills of exchange. These banknotes of the banks were subject to a redemption obligation in this time of free banking. Owners of a banknote could present the note to the bank and receive the amount of gold money in exchange. In these times of free banking, as was the case in countries such as Scotland or Switzerland, private commercial banks were allowed to issue their own notes at will, which in most cases could be redeemed for gold (theoretically also for other precious metals or currency baskets).
With the advent of the national banks, the issue of banknotes was gradually monopolized. Finally, it was central banks that have taken over the issuance of national currencies. In the beginning, these central bank obligations (central bank money) were covered on the asset side by gold and bills of exchange. Only the two world wars brought about a change and real bills were incrementally displaced. They were replaced by government securities, which the central banks had to monetize so that states could finance the wars. With the monopolization of the banknote by the state monopoly of money, commercial banks were denied private note issuance. Gold convertibility was also dropped and depositors could no longer redeem banknotes for gold. In place of gold redeemability deposit insurance was instigated, which was supposed to make customer deposits secure. Nevertheless, commercial banks were still able to create their own obligations in the form of book money, backing it on the asset side with their loan portfolios.
With the popularization of government paper money as legal tender, government and the merchant based money system began to overlap, although the banknote was originally a "market discovery". With increasing digitization, the banknote has been pushed more and more into the background. It has been replaced by the credit card, which is linked to the bank account of a bank customer. This ultimately includes bank deposits in the form of book money, which represents a receivable from the corresponding commercial bank. Money became increasingly abstract and lost its physicality. Although often portrayed as a contrast between market and state, our current monetary system is of a hybrid form. It exists within a government-defined framework with remnants of a market grown merchant system. The state tries to control and steer, private actors try to bypass regulation and exploit opportunities (see shadow banking system and Eurodollar system).
It is the development around public blockchains could once more accelerate a merchant based money system, a new kind of free banking system. Public blockchains like Bitcoin or Ether are global settlement networks that function largely independently of the traditional monetary and financial system. In addition, they possess non-governmental, synthetic assets that are no one's obligation. On this basis, a renewed private money competition could emerge, as we have already seen in the 19th century, which should once again radically change the nature of money. Currently, we could be witnessing the advent of free banking on the blockchain.