The List: Felix Martin on alternative currencies

From the stone money of Yap to exchequer tallies made from willow, history shows there are substitutes for cash

We’re all familiar with conventional currencies issued by national governments, such as dollars, euros, pounds, and yen. But with central banks engaging in ever more extravagant experiments with monetary policy, substitutes for conventional money are in the news. Here are four historical alternatives to taking the Queen’s shilling.

1. The Island of Stone Money When the American anthropologist William Henry Furness visited the remote Pacific island of Yap in 1903, he expected to find an economy so primitive that simple barter would suffice. Instead he discovered a complex monetary system in which enormous stone discs – some as much as twelve feet across– were used as currency.

Fortunately, the islanders were not so literal-minded that they required these cumbersome coins actually to be transferred when payments were made. The limestone discs could stay for years in one spot while the title to them circulated around the island. Indeed, one particularly prodigious specimen had been lost at sea many years before, without anyone questioning the continuing wealth of the family that owned it.

2. Preposterous Sticks In Britain, to the best of our knowledge, the coinage has never been carved from stone. But for more than six hundred years between the twelfth and the eighteen centuries, a good part of England’s monetary transactions were conducted using bits of wood. “Exchequer tallies” were sticks harvested from the willows that grew along the banks of the Thames near Westminster.

Sums owed by the fiscal authorities to suppliers were recorded on them, and the tally stick then split down the middle –leaving a ‘stock’ for the creditor and a ‘foil’ at the Exchequer. The stock then functioned as currency: it would be widely accepted in settlement of private transactions by anyone with tax bills to pay. This ingenious technology met an unfortunate end, however. Abolished in the early nineteenth by zealous Victorian modernisers who branded them “preposterous sticks”, Parliament decided to deploy the centuries’ worth of archives as fuel for the House of Lords stoves in 1834. The conflagration got out of hand, the Palace of Westminster was burned to the ground – and the present Houses of Parliament were built in their place.

3. Money in an Economy Without Banks The commonest money used in modern economies is not notes and coins at all, however, but credit balances on current accounts at banks. Imagine the horror, then, when a notice appeared in the Irish Independent of May 4, 1970 announcing that all of Ireland’s main clearing banks were to close until further notice the following day.

The general expectation was that the economy would grind to a halt. In fact, the opposite happened. In the absence of the official, national monetary system, the Irish population improvised an alternative. For six months, the economy operated using only private IOUs, which circulated as money. When sellers didn’t know their counterparties personally, a familiar feature of Irish society came into its own. Pubs functioned as an ersatz banking system, operating as clearing houses for the spontaneous system of private credit and clearing. “One does not after all serve drink to someone for years”, the Irish economist Antoin Murphy observed, “without discovering something of his liquid resources”.

4. The World’s First Virtual Money? Of course these days, who needs physical currency at all? It is the boast of the advocates of Bitcoin –the leading example of an electronic currency not issued by any state – that it has made an evolutionary leap from antiquated physical money to a money that exists only in the ether. Ironically enough, it is the fans of Bitcoin who have fallen under the misleading spell of physical coinage, however. In fact, credit is much older than cash; and as the previous examples show, money is not any particular type of currency, but the underlying system of credit and clearing that currency represents.

All money is virtual, and always has been – because money is just a set of ideas. So if you want to know what the world’s first virtual money was, it’s no good starting with today’s electronic currencies. The story begins a long, long time before that.

Felix Martin’s ‘Money: The Unauthorised Biography’ is published by The Bodley Head

Copyright The Financial Times Limited 2016. All rights reserved. You may share using our article tools. Please don't cut articles from and redistribute by email or post to the web.