The Day Money Broke: 5,000 Years of a Promise

On a small island in the western Pacific, a family was wealthy because of a stone. It is a disc of limestone, taller than a man, and it had lain on the seabed for generations. No one alive had seen it. And yet everyone agreed: it was theirs, and it was money. That agreement is older than any coin. Older than writing itself. Because when writing finally arrived, among the first things anyone wrote down were debts.

Every economics textbook begins with the same story. Once, people bartered. It was clumsy, so they invented money. It is a lovely story. There is only one problem. Anthropologists have spent a century looking for a society that ran on barter, and they have never found one. What they found instead, in the mud of southern Iraq, was this. A clay tablet, four thousand years old. It is a loan: silver, by weight, repaid with interest. Twenty percent on silver. A third on barley. The shekel was not a coin. It was a weight. Money did not begin as a thing you could hold. It began as a promise, written down.

For two and a half thousand years, that was enough. Then, around six hundred BC, in the kingdom of Lydia, someone struck a lump of electrum, a natural alloy of gold and silver, with the head of a lion. The first coin. A promise you could put in your pocket. Its last king, Croesus, made them of pure gold. We still say 'as rich as Croesus'. And half a world away, China had the same idea, and cast its money in the shape of tiny bronze knives and spades. Too thin to use. Not tools. Tokens.

Rome turned the coin into an empire. And then it discovered the trick that every government since has rediscovered. Under Nero, the silver denarius was ninety-three percent silver. Two centuries later it was a bronze slug with a silver wash. Under five percent. Same coin. Same face. Same promise. In the year three hundred and one, the Emperor Diocletian fixed the price of over a thousand goods, on pain of death. The goods simply vanished from the markets. And that word, salary? It does come from salt. But the legend that legionaries were paid in salt is a Victorian invention. Salt was far too cheap to be wages.

In the year ten twenty-four, in Sichuan, in China, the promise shed its metal altogether. The local coins were iron, and a thousand of them weighed as much as a small child. So merchants began trading paper receipts instead, and the Song government took the idea for itself. The first paper money on Earth. Two centuries on, Kublai Khan made it the only legal money of his empire, printed on the inner bark of the mulberry tree, and stamped in vermilion. Refuse it, and you died. Marco Polo could barely believe it. The Khan, he wrote, has the secret of alchemy. He did. And like every alchemist, he over-used it. By thirteen sixty-eight the notes were worthless, and the dynasty was gone.

Europe was slower. In sixteen forty-four, Sweden minted the heaviest coin in history: a copper plate the size of a doormat, weighing nearly twenty kilograms. So a Stockholm bank began issuing paper receipts for it, in sixteen sixty-one, the first banknotes in Europe. Within three years the bank had printed too many, collapsed, and its founder was in prison. In England, the Treasury kept its accounts on notched willow sticks, for seven hundred years. When they were finally abolished, the clerks burned them in the furnaces under the House of Lords. The flues overheated. On the sixteenth of October, eighteen thirty-four, the Palace of Westminster burned to the ground. Money, it turns out, has always been flammable.

Which brings us to the dollar. Before the Civil War, America had no national currency at all. Thousands of private banks printed their own notes, and by some estimates a third of the money in circulation was counterfeit. After the war, the promise was tied to gold. Then, in nineteen thirty-three, the promise was quietly rewritten. Every American was ordered to hand in their gold, on pain of ten years in prison, and the next year the government re-priced it, from twenty dollars an ounce to thirty-five. And on a Sunday evening in August, nineteen seventy-one, the last thread was cut. President Nixon told the nation he was suspending, temporarily, the dollar's link to gold. The window never reopened. A dollar from that evening buys today, about twelve cents' worth of what it bought then.

So what happens when the promise breaks? Germany, nineteen twenty-three. A loaf of bread that cost one hundred and sixty marks the year before now costs two hundred billion. Prices double every three and a half days. Children build towers out of banknotes because the paper is worth less than the toys. Hungary, nineteen forty-six. Prices double every fifteen hours. The government prints a note for one hundred quintillion pengo. That is a one, followed by twenty zeros. It is still the largest banknote ever issued. Zimbabwe, two thousand and eight. Prices double every twenty-four hours. And the following January, the central bank prints a one hundred trillion dollar note. On the day it is issued, it is worth about thirty US dollars. Three months later, the currency is abandoned altogether.

And today? Today the promise has mostly stopped being paper at all. In twenty fourteen the Bank of England admitted, in print, that banks do not lend out your deposits. When a bank makes a loan, it simply creates the money. Ninety-seven percent of the pounds in Britain exist only as numbers in a bank's computer. Cash is now one payment in seven in America, one in eleven in Britain, and one in twenty in Sweden. Which is why, this March, the Swedish central bank did something extraordinary. It told every household to keep a week's worth of banknotes at home. In case of crisis. In case of war. In India, a phone app now handles twenty-three billion payments a month. A company called Tether, which issues digital dollars, has become, by its own account, the seventeenth largest holder of American government debt. And in twenty ten, a programmer bought two pizzas for ten thousand bitcoin. At today's price, he paid about seven hundred and ninety million dollars.

So what comes next? One hundred and forty-six countries are building digital currencies run by their central banks. Three have launched. In the Bahamas, the first of them, the digital dollar is, after five years, less than half a percent of the country's cash. This July, Visa, Mastercard and Stripe backed a new standard so that artificial intelligences can pay each other, without a human in the loop. Somewhere, quietly, the next holder of the promise may not be a person at all. And fifty-five years after abandoning gold, the world's central banks bought more of it last quarter than in any quarter in history.

Clay. Silver. Bark. Paper. Numbers in a machine. The material has never mattered. Money was never a thing. It was always a promise, and the whole of history is the story of how far a promise can be stretched before it snaps. Somewhere in the Pacific, a stone still lies on the seabed. And it is still money.