Money is something people use to buy things: sellers agree to take it in exchange for what they sell. Money acts as a unit of account, a ruler for measuring value, but it does not set that value. The costs of making a thing and people's desire for it do. To work well as money, an asset must keep a steady buying power over time.
In early Virginia, people used tobacco as money, and colonists found that its value varied with its quality. Tobacco money had problems: sellers might pack poor leaves at the bottom of the barrel and the best on top.
The ancient Lydians, who lived in what is now Turkey, invented coins. Around 630 BCE, someone in Lydia stamped a piece of precious metal with a mark, which made people trust its weight and purity. Coin stamping gave no new value to the metal. It only let people trust the stamp instead of re-weighing and re-testing the lump each trade. Experts call the early royal Lydian coins croesids after King Croesus, who ruled Lydia from about 561 to 546 BCE. The Lydian stater is considered by numismatic historians to be the first coin officially issued by a government, and the model for nearly all later coins.
Cowrie shells reached West Africa through trade: they were exported there from the 14th century by Arab, then English and German merchants. In China, large payments were counted in strings of coins, but the strings were too heavy to carry far. By 1085 China's government made more than 6 billion coins a year, ten times what it made under the Tang dynasty.
Paper money in China began when merchants traded receipts from deposit shops instead of carrying heavy strings of coins. In the 1020s China's government took over the paper receipt system, making the world's first government-issued paper money. The first paper money made in the American colonies was issued by Massachusetts in 1690, to pay for a military expedition. During the Civil War, Congress let the Treasury issue Demand Notes in 1861 to pay for the war.
In 1907 the U.S. had another financial crisis, and it was the only major financial power without a central bank. The Federal Reserve is the central bank of the United States, created by Congress in 1913. The Federal Reserve Banks started issuing Federal Reserve notes in 1914, after the Federal Reserve Act of 1913. The Fed has five key jobs: monetary policy, financial stability, supervising banks, safe payments and consumer protection. It does not print money. The Bureau of Engraving and Printing prints it, and Reserve Banks give it to banks.
The biggest note ever printed was a $100,000 Gold Certificate in 1934-35, and it was only used between Federal Reserve Banks. The U.S. government has never issued a $1 million note. As of November 2026, the $100 bill is the highest-value U.S. bill the Federal Reserve currently issues. The Federal Reserve estimates in May 2025 that a $100 bill lasts 24.0 years, a $20 bill 11.1 years and a $5 bill 5.8 years. The Federal Reserve checks bills it receives with machines. Those in good condition circulate again and the rest are destroyed. Microprinting on a $100 bill is tiny text, such as THE UNITED STATES OF AMERICA on a portrait collar, that you may need a magnifier to see.
You can earn money by doing a job. A wage is money an employer pays a worker for the work they do. The first federal minimum wage was set by the Fair Labor Standards Act in 1938. Income is the money you get from jobs, allowances and gifts. One budgeting rule suggests using 50 percent of income for needs, 30 percent for wants and 20 percent for savings.
Before 1971 the U.S. had a gold standard: de facto since the 1830s and by law since 1900. In the past, banknotes could be swapped on demand for gold, but today they cannot. Representative money came after commodity money. Today, U.S. currency is fiat money. It is not tied to gold or any other asset.
Words to know
- croesids: early Lydian coins
- stater: Lydian coin
- fiat: unbacked money
- microprinting: tiny text
- commodity: valued good
