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From Croesus to e-money accounts: A whistle-stop tour through the evolution of money

Living like Croesus – the last king of Lydia – is something most of us would like to do. Very few people, however, are familiar with the historical Lydian kings, who inhabited the Mediterranean coast of Asia Minor in what is now Turkey. The Lydian kings are considered the inventors of money, producing the first coins in around 600 BC. Shortly afterwards, the Greeks also began minting coins, resulting in a severe decline in the popularity of the bartering system by 400 BC. There was, however, still no standardised system of coinage: each region had its own set of coins with their own specific values. Around the same time, the Romans also began to create coins, first of copper or bronze, and later of gold, silver and brass.

In the Middle Ages, Charlemagne, in particular, considerably influenced the history of money. The coin known as the denier was introduced in the 8th century as the standard method of payment in the Carolingian Empire, now modern-day Europe. Charlemagne’s currency reform in 793 AD also replaced the hitherto gold coinage with silver.

In the first millennium of its history, cash existed only in the form of coins. Around the year 1000 AD, however, China began issuing paper money. It wasn’t until 500 years later that Europe did the same. The major problem with this concept was that, unlike coins, the material value of paper money was not equal to the value printed on it, and people of all cultures and countries struggled to recognise and accept it. At the time of the French Revolution, many people had their money paid out in coins for this very reason, a trend which caused a scarcity of coinage at the banks.

Hand in hand: cash and scriptural money

It wasn’t until the 19th century that banknotes, alongside coins, became a recognised method of payment. Although cash, as we know it, has a long history, its current forms haven’t been around all that long. Almost at the same time, cashless payment transactions were launched, initially in a form known as scriptural money. This concept is closely linked to the development of paper money. In this type of transaction, the borrower fulfills his or her monetary obligations to the lender without using cash. In 14th century Italy, for example, full-value coins or precious metals were deposited with bankers, who issued promissory notes for them. These claims against the bank were recorded in an account. As accounts were, at that time, kept in handwritten ledgers, this type of transaction is still known as scriptural money. Over the years, these ledgers evolved into the databases and cashless payment transactions which are now standard in many countries.

e-money today and tomorrow

The latest stage in the technological evolution of money is e-money. Here, monetary values in the form of claims are stored either decentrally on data carriers such as smart cards, or centrally on servers. Gift cards traditionally issued by retailers are, however, not included in this category, as e-money cannot be accepted only by its original issuer. Instead, it must be more widely valid.

Prepaid credit cards, which do fit the definition of e-money, are currently very popular. They are loaded with a flexibly definable amount and can be used securely by consumers at all credit card acceptance points, both online and offline. Many payment apps are also based on e-money. They work by transferring sums of money from one e-money account to another. When, for example, someone uses the Cringle app to send money to a friend via text, the amount is debited from the sender’s current account before being credited to his or her e-money account. From there, it is transferred to the recipient's e-money account and finally to the recipient's current account. The app turns an otherwise complicated-sounding process into child's play, allowing users to transfer money via a simple text message.

The main difference between these transactions and traditional money transfers is that users no longer require access to their current accounts or online banking: the need to contact a bank has been removed. e-money providers, which are combinations of FinTech companies and traditional online banks, are working at top speed to develop innovative and convenient payment offerings. The aforementioned prepaid credit cards for both individuals and companies are just one of many options. Contactless payments, using NFC stickers, for example, are another. The concept of storing money centrally on servers belonging to regulated e-money institutes is becoming increasingly associated with security and convenience. Although many people still regard technological advances in electronic payments with scepticism, there is no longer any doubt that electronic money is set to become the predominant payment method of the future.

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