People soon realised that having a medium of exchange would solve the problems of the bartering system. The medium of exchange is an object that everyone agrees has a specific value. The object can be used as payment for goods and services. This object becomes the currency of that society.

Think about the tailor in the previous example. Imagine their society used metal discs as currency. The tailor and carpenter would agree on how many discs were a fair exchange for repairing the door. The carpenter could use these discs to buy any other item she wanted. As long as the tailor can sell clothes to other people, he will have currency to pay for all the goods and services he needs to live.

The development of currency allowed trade to become more sophisticated. Traders began to travel to different markets. The tailor could now sell his clothes in other places because people would pay using currency he could spend or save where he chose.

You might imagine that currency is only the banknotes and coins like those used in the UAE today. Many objects have been used as currency throughout history, including stones, seashells, salt, whale’s teeth, and beads. Around 2,000 years ago, metal coins became a popular form of currency because they were easy to carry and long-lasting. People agreed on what the metal coins were worth and exchanged this currency for goods and services.

Another significant advantage of currency is that it allows people to save. The farmers who relied on bartering would never be able to save as the crops would perish and become worthless. With currency, people could save some money for use in the future.