IB Economics The Evolution of Money

From Silver Shekels to Crypto: The Evolution of What's in Your Wallet

Have you ever stood in Tesco, tapped your card to pay for a meal deal and thought, "Hang on, why are people still using physical money?" Is it just me paying contactless then? Well, this entry may be interesting, because the story of what we use to buy our daily iced coffees is actually worth learning for your IB Economics Course.

When Money Was Actually Worth Something

Imagine you're in ancient Mesopotamia (basically modern-day Iraq), and you've just sold some banging pottery at the local market. Your payment method? A shekel - which isn't just a word, it's literally one-third of an ounce of silver. That chunk of silver WAS your money.

For thousands of years, this made perfect sense. Gold and silver coins were used everywhere from ancient China to Egypt because they ticked all the boxes of good money:

• You could carry them around

• They lasted for ages (unlike that avocado that goes brown in 0.5 seconds)

• You could chop them into smaller bits when you didn't want to spend the whole coin

But humans are nothing if not creative. In cold parts of the world, people used animal furs as cash. Along trade routes, salt was literally worth its weight in gold (hence the phrase "worth your salt"). And remember this as an anecdote - in Eastern European countries during the Cold War, vodka became a legit currency because you could trade it for Western goods. Talk about liquid assets!

My personal favourite? In prisons today, packets of mackerel filets are used as currency. Why? Because they last longer than other commissary items. Imagine telling your mates: "Sorry, can't come out tonight, I'm skint - spent my last two fish packets on a smuggled Mars bar."

What Makes Something Actually Work as Money?

For something to function as money, it needs three traits:

1. Medium of Exchange: People need to actually accept the thing as payment. If I try to pay for my Uber with Pokemon cards, I'm walking home.

2. Store of Value: Your money needs to hold its worth over time. A farmer selling harvest for money can use that cash months later. Try storing actual strawberries for six months and see how that goes and the value they have.

3. Unit of Account: You need to be able to divide it into smaller amounts. "I'll give you half a cow for that iPhone" just doesn't work in practice.

When countries don't do their homework well and print too much money, causing inflation (E.g. Zimbabwe with your 100 trillion dollar notes), the currency fails at points 1 and 2. People rush to spend it immediately because it's losing value faster than your phone battery.

Paper Money: "Trust Me, Bro"

Around the 1800s, people started using paper notes instead of coins, which was revolutionary. Paper money was:

• Easier to make

• Lighter to carry (no more hernias from your coin purse)

• Simple to divide into smaller amounts

But there was one massive problem: unlike gold, paper itself is worthless. It's literally just fancy paper. So governments had to convince everyone: "Trust us, this piece of paper is worth something."

Their solution? The gold standard - promising that each paper note could be swapped for actual gold at a fixed rate. In the US, it was $21 per ounce of gold. But this system collapsed in 1933 during the Great Depression when too many people showed up saying, "This paper is cool but now give me my gold."

Bitcoin and Beyond: Digital Money or Digital Insanity for your IB Economics Course?

Fast forward to 2009, when some mysterious person / group called Satoshi Nakamoto invented Bitcoin. This kicked off the cryptocurrency revolution that's either the future of finance or a massive Ponzi scheme, depending on who you ask at family dinner.

Cryptocurrencies like Bitcoin are appealing for two main reasons:

1. They're digital and can be transferred securely without banks getting involved

2. No government controls them, which is attractive if you live somewhere with a central bank that prints money 24x7

The bitcoin price swings are absolutely impossible to understand. Bitcoin went from about $600 in 2013 to nearly $20,000 in 2017, crashed to $3,300 in 2018, then shot up to $60,000+ in 2021, before falling back to around $20,000 in 2022, bitcoin is currently worth $104.361.40 (May 2025). Imagine if your £10 note was worth £1,000 one day and £3 the next! Only few people can handle this.

Even more difficult to believe is the Shiba Inu coin, created as a joke based on a dog meme. If you'd bought £100 worth in January 2021, it would've been worth £33 MILLION by December. But when something increases in value that quickly, no one actually uses it to buy stuff. You'd be the person who spent 10,000 Bitcoin on two pizzas in 2010 (worth over £200 million today - worst takeaway decision ever).

Some cryptocurrencies try to be less chaotic. "Stable coins" like Tether are pegged to traditional currencies such as the US dollar and supposedly backed by actual reserves. Think of them as the sensible friend in a group of party animals.

So What's Next?

Central banks are watching all this crypto madness and thinking, "Maybe we should get in on this digital currency thing." Many are now developing their own Central Bank Digital Currencies (CBDCs) that would combine the technology of crypto with the stability and backing of traditional money.

China's already testing a digital yuan, and the Bank of England is exploring a "Britcoin." The future of money might not be Bitcoin, but it's definitely going to be more digital than the coins and notes your parents grew up with.

For access to all IB Economics exam practice questions, model answers, IB Economics complete diagrams together with full explanations, and detailed assessment criteria, explore the Complete IB Economics Course:

Why Should IB Economics Students Care About This?

Because understanding money is key to understanding, well, basically everything in economics. And the battle between traditional currencies and crypto represents one of the biggest economic shifts of our lifetime.

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• Understanding key IB Economics concepts

• Applying them in real-world IB Economics contexts

• Building IB Economics course confidence without drowning in dry theory.

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When the exam asks about the functions of money or cryptocurrency adoption, you'll be the one writing a proper answer while your mates are panic-scribbling about Bitcoin making people rich.

Next time you tap your card or phone to pay for something, take a second to appreciate the bizarre journey from silver coins to digital currency that makes that simple transaction possible. And maybe, keep an eye on those mackerel filets - they might be the next big thing!

Stay well,

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