Evolution of Money - Barter
Money has been around for centuries, as a means of exchange between people who want to buy or sell goods and/or services. Many different tangible goods have been used as money over the centuries, as a means of exchange.
Why? Because the barter system is inefficient and does not sufficiently allow for economic growth. This may be hard to stomach for a younger person growing up in the modern world, I know I believed for a couple of years that we need to rid the world of the monopolies which money creates and return to a fair for all bartering system. I have come to learn how very naive I was in thinking this way.
Why the barter system does not work
The best way to elaborate on the downfalls that come with the barter system, is through an explanation of 'The coincidence of double wants'. I encourage you to go ahead and look this phenomenon up and really understand the problems it presents.
Briefly, the coincidence of double wants is a situation where, say, Bill has an axe he wants to trade for some milk to drink, the farmer who produces milk, Fred, is not in need of an axe at the moment, so is not willing to trade some of his milk with Bill for an axe. Fred is in need of some linen for the cold nights and that is currently what he wishes to trade his excess milk stock for. This means the only way Bill is able to trade his axe for some milk, would be to first trade his axe for some linen, if the local linen producer was willing to trade their linen for an axe, and then Bill could trade with Fred to receive his milk.
It becomes evident that this system is simply too inefficient and not sustainable. In a modern society this would cause chaos. As an extension to this problem, Fred the farmer needs to trade his milk before it turns sour, otherwise he has wasted his produce and lost some income. If Fred wanted to travel to the next city over and buy some goods, he would have to take his milk to trade, which would be sour by the time he got there.
I found this Youtube video published by "Ashutosh Seth" to be a wonderful explanation of this issue -
Having a fundamental understanding of this concept is crucial for one to learn the ins and outs of money, currency and finance in the modern world.
A touch of history
Banking goes back to the days of Mesopotamia. In these days the royals would store commodities in their warehouses for the locals and issue a form of receipt which had the value of the stored commodity. These receipts become used not only between depositors and the royals, but depositors started trading these receipts with other locals for goods and services. So was created, the first banking system.
There was pretty much only 1 civilization which existed without using any commodities as a form of money and relied on traditional bartering, this was, the Incas.
The first official minted money was done in a place called Lydia (which on a modern map would cover the western region of Turkey), this happened around 600BC.
References:
http://www.investopedia.com/articles/07/roots_of_money.asp
https://projects.exeter.ac.uk/RDavies/arian/origins.html
(Both great resources for understanding this topic)