Throughout history, money has taken many forms, such as grain, shells and large stones. But the oldest historical items most people would immediately associate with money is generally metal coins and paper banknotes.

The earliest known coins with official weight and metal content guarantees were minted in the kingdom of Lydia, in the west of modern Turkey, approximately 2 600 years ago. The earliest official paper banknotes were printed much later; in China around 1000 AD. The value of these banknotes was based on their redeemability into a predetermined number of metal coins.

Banknotes and coins have remained in circulation for centuries, but today most money is electronic. We do not need to bring physical money with us because we can transfer money between accounts through online banking, mobile phones or payment cards.

What makes money so valuable?

Paper, metal and electronic data are all abundant. When these are used to make money, however, they become more valuable than what they are made of.

So where does this added value come from? Money is valuable because it allows us to carry out fundamental economic functions:

1. First, money provides a practical way to transfer value, ie as a medium of exchange and payment. It is easy to carry and break down into different unit amounts. The emergence of digital deposit money has enabled the transfer of value across the globe with a simple keystroke.
2. Second, money is a practical store of value, ie a means of saving. Whether as notes and coins in a piggy bank or as a balance in a savings account, money can be stored over the long term and accessed at short notice.
3. Third, money is a practical unit of account, ie a unit of measurement. Without money as a common unit of account, a good would essentially need to be valued relative to all other goods. For example, a dozen eggs could be worth 1kg of flour, 0.5l of cola or 0.02 of shoes. Even with few potential goods, keeping track of the relative value of each individual product would be a challenge. However, when all goods and services are valued in terms of money, their relative values become much clearer.

In other words: Money is as money does. It is a tool, a technology, albeit one that is subject to a strictly defined social precondition.

What distinguishes money from other objects of value?

History shows that many things can function as money. Essentially, all that is needed is consensus. Yet this is more easily said than done, especially when must agree.

When the first official coins were minted in Lydia 2600 years ago, objects of different shape and size had been sporadically used as means of exchange for thousands of years. What was new - and particularly valuable - was the king of Lydia's guarantee that the value of the coins with his stamp had a set value.

Once confidence in the value of these coins became universal, it became popular to use these particular coins, especially for trade between strangers. With official coins, the metal content of each coin did not need to be checked, nor did one necessarily need to trust the payer. One could simply trust the coin itself. The official coins were legal tender as a means of payment everywhere, and there was broad consensus as to their value.

In other words, general confidence in the value of money is the fundamental feature that distinguishes money from other objects. However, such confidence does not arise on its own.

In Lydia, the king guaranteed the value of money. Today, most countries delegate this task to a central bank. In Norway, Norges Bank is responsible for the value of the Norwegian krone. And the value remains the same regardless of whether money is minted printed or programmed.