Why is a dollar bill valuable? After all, you can’t eat it. You can’t wear it. It’s just a piece of paper. But you can trade dollars for things that you can eat or wear. The bills are worth something because everyone agrees that they have value.

WHAT IS MONEY?

Money is anything that is widely exchanged for goods people sell or work they do. It is a form of payment people will accept. Long ago, precious metals such as gold and silver were used as money. Today, paper bills and coins are a common form of money.

Money has other uses, too. One of them is to measure the value of things. Bicycles, clothes, even hamburgers have a certain value. That value is the price—how much money people will pay for it.

Money is also a way people store up wealth. People save their money in bank accounts or piggy banks. Saving money is a way of collecting and storing wealth, much like owning land, a home, or jewelry.

MONEY AROUND THE WORLD

Most countries have their own unit of money. The money used by a country is called its currency.

In the United States, the basic unit of money, or currency, is the dollar. Each dollar is divided into 100 cents. The value of anything you want to buy in the United States can be stated in dollars and cents.

Other countries have their own currencies. In the United Kingdom, the value of things is measured in money units called pounds, not dollars. Algerians use neither pounds nor dollars, but dinars. Indians use rupees. Mexicans use pesos. Russians use rubles.

MANY KINDS OF MONEY

Money is more than just paper bills and metal coins. It can be just about anything, as long as everyone agrees.

Over the course of history, many items have been used as money. Shells, beads, furs, salt—even the teeth of dogs—have all been used as money. They were used much like we use bills and coins today.

HOW WAS MONEY INVENTED?

No one person came up with the idea of money. The idea developed slowly. Before money was invented, people traded goods using the barter system.

In the barter system, people trade things for other things directly. Suppose a man had a sheep and wanted clothes. He found someone with an extra suit of clothes who wanted a sheep.

But what if he only wanted a shirt? He might not want to trade his entire sheep for just one shirt. How could he get change for a sheep? Problems like this made bartering difficult. People invented money to make trading easier.

METALS AS MONEY

Eventually, people found they could use precious metals such as gold, silver, or copper to help them trade. Almost everyone wanted these metals. So people could trade what they had for precious metals, knowing they could exchange the metal for something else they wanted or needed.Metals had other benefits, too. They were easy to store, lasted a long time, and could easily be divided into smaller pieces. If you wanted something small, you could offer just a bit of your metal.

COINS AND BILLS

Once people started trading metals as money, coins were soon invented. A Turkish kingdom called Lydia made the first metal coins around 600 bc. The coins were stamped with the king’s seal. About the same time, people in China began to use paper money.

In the past, paper money often stood for a precious metal like gold. You could go to the government or a bank and trade your paper bills for actual gold.

Today, in most countries, you can’t trade paper money for precious metals. People accept it because they have confidence everyone else will accept it, too.

Source: Microsoft ® Encarta

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