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updated: 6/13/2011 2:41 PM

Babowice: Different currencies meet different needs

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  • Around 1700 B.C., Babylon King Hammurabi wrote laws for his kingdom, including rules for compensation using money and barter. The Code of Hammurabi is on view at the Oriental Institute in Chicago.

      Around 1700 B.C., Babylon King Hammurabi wrote laws for his kingdom, including rules for compensation using money and barter. The Code of Hammurabi is on view at the Oriental Institute in Chicago.
    Courtesy of the Oriental Institute WEBSITE

 

You wanted to know

"Why are there different currencies in the world?" asked students in Amber Socicau's third-grade classroom at Thompson Elementary School in Lake Villa.

As societies began to develop, people wanted to exchange goods and needed a consistent unit of value so items could be traded fairly.

Say you wanted to buy a goat. How much grain is enough to pay for the trade? Are you sure you're not giving away too much?

Ancient Egyptians set up a system of weights and measures to determine unit payments for goods. Bread, beer, cloth, cooking fuel and other items were used to pay laborers and to purchase items.

Standards for the bread loaf recipe and the beer measure were created. Centuries-old records exist that show prices for goods and services.

As governments changed, bread and beer were replaced with metal coins as the preferred units of measurement. Bronze, silver, copper and gold coins were minted. The Babylonian King Hammurabi established a code of laws in 1750 B.C. that describes specific rules for money, barter and compensation for his Mesopotamian subjects.

Michael Miller, economics professor at DePaul University in Chicago, said, "As money was developed in each area or country, it took on characteristics of the people and the society.

"People in France wanted money that was just theirs and that they could control, and on the money they would put pictures of French royalty. We did the same thing in the U.S. Our money has pictures of famous presidents and founders who mean something to us."

Beginning in 1024 A.D., Chinese rulers from the Song Dynasty printed money on paper. Mongolian invaders adopted this concept and created the first fiat currency -- paper money with value backed by the government.

Fiat is a Latin word meaning "let it be done," another way of saying that it is ordered by the government. Europeans only began using government-backed bank notes, or paper money, in the late 1700s.

"There are different currencies in the world because the money in each country must meet the needs of the people in that country," Miller said.

Today, there are 181 different currencies used worldwide. Ten years ago, 17 countries joined to use one common currency, the euro.

The idea was that by using one currency, the European bloc would increase trade, save money by eliminating exchange fees, lower interest rates and inflation, boost competition and opportunities for employment.

As a union of individual governments, they have a stronger interest in resolving conflicts that might have created hostilities or war.

The downside of merging into one money-issuing entity, of course, is losing the right to make independent decisions regarding currency.

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