Imagine living in a time when there was no money , only direct exchange of goods. At first glance, it may seem that the world was a simpler and fairer place to live. However, as we will see in this article, barter exchanges between families often proved to be unfeasible, and the emergence of money was conceived as a tool to improve negotiations and ensure families' comfort.

What is the Origin of the Currency?

At a time when commerce depended exclusively on direct exchange, as when neighboring families exchanged their corn production for another family's grapes and wine, an urgent need arose: a universal currency that would facilitate these transactions. The reasons for this demand were obvious and evident: ease of transportation and stability of value. Now, imagine transporting a load of corn in torrential rain, just to exchange it for wine and grapes in the city. Complicated, isn't it?

At this time, silver and gold emerged as an almost natural solution for trade, as they were divisible, easily transportable and widely accepted , maintaining their stability in value and even appreciating over time. However, silver saw its prominent position threatened with the discovery of Potosí's vast reserves, during a period in which supply of the metal flooded the European market, leading to a significant drop in its price. Meanwhile, gold, being scarcer by nature , remained a reliable reserve of value , preserving families' purchasing power and consolidating itself as an exchange currency recognized throughout the world .

How did the money come about?

The replacement of gold with paper money marked a significant change in the financial scenario. In turbulent times, when families had few options for protecting their assets , a common alternative was to entrust some of their gold to a goldsmith , who then transformed it into jewelry, watches and artifacts. In return, the goldsmith issued a receipt that gave the bearer the right to withdraw the amount of gold deposited. Gradually, these paper receipts from goldsmiths began to be used as an accepted means of exchange in society.

How did the first bank come about?

The English government, upon observing the exorbitant enrichment of goldsmiths due to the growing deposit of gold in their hands , intervened by "confiscating" many of these businesses and establishing what we know today as the national bank. In the case of England, this marked the beginning of the Bank of England (BOE). Inadvertently, this intervention also resulted in the creation of paper money as we know it. Initially, this paper money was nothing more than a certificate of deposit equivalent to the value of gold stored in the national bank's vaults.

How Did Printed Money Come About?

At the beginning of the paper money system, a nation's bank purchased gold and issued certificates , so all paper money printed by the government had an equivalent value deposited in gold at the national bank . This system was beneficial, as it forced the government to maintain gold reserves and, to do so, it had to regulate its spending and practice fiscal economy.

However, the gold standard officially came to an end on August 15, 1971, when United States President Richard Nixon announced a series of economic measures that included suspending the convertibility of the dollar into gold . This marked the end of the Bretton Woods system, established after World War II, which pegged major world currencies to the United States dollar , which was, in turn, convertible into gold. After this decision, currencies began to float freely in relation to each other, in a system known as " exchange rate fluctuation" .

Why doesn't the government just print money and distribute it to the population?

Imagine this: We all now have money printed and distributed freely by the government. With that in mind, we would all probably have plans to improve our lives, buy goods we've always dreamed of, enjoy better meals, etc. The big problem is that everyone would want to raise their standard of living at the same time, and as we know, the number of houses, new cars and other goods we produce would not be enough to serve everyone. Right now, a house, a car, a plate of food, and all goods that are not easily produced and cannot be printed would increase in price , causing what we know as inflation.

In summary, we can observe that money arose from people's need to exchange goods and products produced for other items produced by third parties. Initially, gold and silver were chosen as forms of currency due to their widespread acceptance and ease of transportation. With the development of the economy, the first national banks emerged, which began to issue certificates of deposit (paper) backed by gold , thus creating the concept of money . Over time, major governments abandoned the gold standard, which marked the beginning of the era of printing money without gold backing. However, as we have observed, this practice, if carried out without caution, can lead societies to face inflationary economic crises.