The history of money and payments. 6 chapters and a final quiz.

Chapter 1. Before money: barter, debt, and primitive currencies.

A fisherman who wants sandals must find a cobbler who, on that very day, wants fish. This double coincidence of wants is barter’s great weakness. On top of that, fresh fish can’t be stored, and it is hard to say how many sandals a tuna is “worth.” Every civilization eventually adopted, in its own way, an intermediate object that everyone accepted. That object is money.

Before metal coins, humanity used commodity money: useful, scarce, or prestigious goods that served as a standard of value. Some left lasting traces in language: pecunia (Latin for money) comes from pecus, cattle. The word “salary” comes from salt (sal), which was used to pay Roman legionaries.

Historians have established that debt often predates money. In Mesopotamia, around 3000 BC, clay tablets recorded claims in barley or weighed silver. These IOUs were transferable and managed by temples and palaces, and the Code of Hammurabi (~1750 BC) already regulated interest rates. Accounting and credit are older than the coin itself.

Chapter 2. Struck coins: when authority guarantees the metal.

Weighing and assaying metal at every transaction was tedious, and the breakthrough came in the kingdom of Lydia (in present-day Turkey) around 650 BC. Small coins of electrum (a natural alloy of gold and silver) were struck with an official seal, and the king’s stamp guaranteed their weight and fineness. No more scales: you just counted. Around 550 BC, King Croesus introduced the first bimetallic system, with coins of pure gold and coins of pure silver. His wealth remains proverbial.

Minting also gave the sovereign considerable power: seigniorage, the difference between a coin’s face value and its production cost. The temptation to clip coins or reduce their precious-metal content to finance wars was constant. Users were not fooled: they hoarded the good coins and spent the bad ones.

For more than two millennia, paying therefore meant physically transferring metal: safe and universal, but heavy, dangerous to transport, and limited by the amount of metal available. Long-distance trade in the Middle Ages would invent something else.

Chapter 3. Bills of exchange, bankers, and the first banknotes.

Carrying chests of coins along medieval roads meant risking robbery by bandits. In the 12th and 13th centuries, Italian merchants trading at the Champagne fairs perfected an instrument: the bill of exchange. A written document instructed a correspondent in another city to pay a specified sum on a set date, so money now traveled as a written record, not as metal. The Knights Templar already offered pilgrims a similar service: pilgrims deposited funds at a Templar commandery and withdrew them in Jerusalem by presenting a letter.

Through endorsement, signing the back of the bill to transfer the claim to a third party, the bill of exchange passed from hand to hand as a form of near-money. The great banking families (the Medici in Florence, the Fuggers in Augsburg) built networks of correspondents across Europe. The word “bank” comes from banco, the bench of Lombard money changers.

Chapter 4. Checks and bank money: money becomes a ledger entry.

Descended from the bill of exchange, the check spread in England in the 18th century. It is a written order instructing a bank to pay a sum to the payee on demand, and France officially adopted it with the law of June 14, 1865. With the check came a broader idea: money no longer needs to exist physically and can be just a line in a bank’s books. This is bank money, which French calls monnaie scripturale (from the Latin scribere, to write).

France was long “the land of the check”: free for consumers, checks still accounted for about 70% of cashless payments in the mid-1980s. Their decline in favor of cards and credit transfers has since been dramatic. Even so, France remains by far the largest user of checks in the European Union.

The 19th century also saw the rise of clearing houses. Instead of settling each check one by one, banks exchanged their claims at the end of the day and settled only the net balance. This principle of clearing remains central to every modern payment system, from cards to credit transfers.

Chapter 5. The card revolution: from Diners Club to Cartes Bancaires.

In New York in 1949, businessman Frank McNamara was dining out when he realized he had forgotten his wallet. That mishap (perhaps embellished) led in February 1950 to the Diners Club, a cardboard card accepted at a handful of New York restaurants and billed at the end of the month. The breakthrough was not the card itself, since department store cards already existed. It was its universality: one card accepted by many independent merchants. The club had about 20,000 members in its first year.

With Visa and Mastercard came the four-party model: the cardholder, the cardholder’s issuing bank, the merchant, and the merchant’s acquiring bank. A network (scheme) connects them and sets the rules, and this architecture still carries nearly all card payments today.

Chapter 6. The great dematerialization: from SEPA to instant payments.

On January 1, 2002, euro notes and coins replaced the national currencies of 12 countries. It was the last great milestone for cash: everything since is a story of dematerialization. Europe first harmonized its cashless payments with SEPA (Single Euro Payments Area): SEPA Credit Transfer (SCT) in 2008, SEPA Direct Debit (SDD) in 2009, and migration completed on August 1, 2014. A Paris–Lisbon transfer became as simple as a Paris–Lyon one.