August 30, 2019
Money: From Obligation to Convenience
By Mina Ayoub, Communications Executive at EFG Hermes.
Currency has always been an integral part of society before it was an integral part of an economy. The history of money is one that has seen various transformations until our digital age. Was there a need for the adaptation of money? Here is how we went from obligation to convenience.
Dating back to 9000 B.C., the barter system prevailed where people simply gave up some of what they had in abundance, to others in exchange for more of what they don’t have. However, this method of payment was deemed costly, as it demanded a “double coincidence of needs”. Simply put, you had to find someone who wanted what you were willing to give away, and who coincidently wanted to give away what you require.
This system was quickly replaced in China around 1100 B.C. where the first resemblance of a coin was crafted. In Lydia (modern day Turkey) around 600 B.C., the first minted coin made its way to the markets. Made from mixtures of silver and gold, stamped with pictures, these coins helped Lydia with its internal and external trade elevating it to one of the richest countries in the world in their time.
With time, the concept of “value” and “worth” were difficult to measure and guarantee, at which point gold provided a sufficient benchmark. In light of this, the first concept of banks were established. Whereas China had started to use paper money between the 7th and 10th century through bills issued by private institutions in exchange for gold and precious metals, in following centuries paper money (independent from gold exchanges) were being manufactured. it wasn’t until the 13th century that paper bills had been introduced in Europe during Marco Polo’s adventures to China. Europe started commonly issuing bank notes sometime between the 16th and 17th century.
However, carrying too much cash posed a security risk and allowed for greater chances of theft, at which point modern day banks implemented the concept of magnetic strips on cards that we now call, debit and credit cards. Which brings us to the matter of credit.
Consumers borrowed too much money, used up too much credit and were crushed under the weight of their debt. Banks were strained due to not receiving the money they were promised. Eventually, enough of this went on until mortgage credit caused the financial crisis in 2008.
Yet again, evolution was required, and cryptocurrency came to light with popular examples such as Bitcoin, which saw its biggest boom in 2017. Yet it was not regarded as a popular means of exchange
In time, mere adaptation was not enough. It became more about convenience and functionality than form. Under that realization, smart apps and payment programs were deemed as the ‘now needed’ platform for purchases. Credit caused crushing debt. Consumers wanted to make instant purchases without having the required amount on the spot, nor did they want to forego a part of their monthly income for over a year (with interest). Banks did not want to risk not receiving their money from giving out loans and credit cards while 0% interest programs over a year were too costly. Yet again, evolution was required.
Modern middle ground solutions were established first by Financial technology (Fintech) solutions in Europe, the U.S.A and Australia but then was first introduced in Egypt through, valU. valU proved the only of its kind in the Middle East, through their payment program ‘Hattrick’. A program that allowed consumers to make their purchases by walking into the store and leaving momentarily, paying over 3 month installments with 0% interest starting 2 months after they acquire their product. Consumers no longer require bank loans that cut their monthly income down, nor do they depend on large debt. Interest rates become a thing of the past, while paying on the spot becomes a choice rather than obligation.
Time is money, why not save both?