Convertible Token Money

The need for people to exchange goods and services has long existed even before money as we know it today was invented. Through time, people have devised ways to make trade or exchange of goods more convenient. The barter is the most ancient and primitive form of trade. In a barter economy, no notion of money existed. Goods were exchanged directly. One needed to find an individual who had the goods you were looking for and at the same time was in need of the goods you had. It is easy to see how difficult the exchange of goods was in this economy. Naturally people sought a better way of exchange; one that was universal. This gave rise to commodity currencies.

\subsection{Commodity currencies}
The idea of money originated in this era howbeit in a primitive form. In this economy there was some universal equivalent (``used as money'') which was normally another good. This good was …show more content…
In this economy, the Goldsmiths would keep your gold in their vaults and in exchange give you a piece of paper that certified that they owed you a certain amount of gold. This was an assurance to everyone that the bearer (of the paper) had a certain amount of gold in holding and hence the paper could be used to claim the actual gold. Consequently the piece of paper could be used to trade.

With the passage of time, people started to use cheaper metals or pieces of paper that could be exchanged not for their intrinsic value but for the value that was printed on them. In this economy, the token (either a piece of paper or a metallic coin) was not worth much in that it had no intrinsic value, but it was used as ``money'' because it was backed by commodity money (gold or silver) at a fixed exchange rate. Token money would be exchanged with the issuer of the currency; the Goldsmiths. This is how the gold standard came into