Debt and Credit From Then Til Now

Financial hardships are experienced all over the globe due to the current crisis. Thus, a lot of people have debt troubles or are in need of credit. But even during more prosperous times debt is incurred not just by private individuals but also by businesses and governments. This is because borrowing is the most convenient option for those who need extra funds for personal needs, business expansions, or government growth. It’s a practice that has been around since ancient civilization. Here is a look at how debt and credit has evolved through the years.

 

Debt and currency. The barter system was the earliest form of commerce. During this time there was no formal currency nor a clear cut rule on debt and borrowings. Currencies and exchange rates on commodities vary among tribes, nations, or cultures depending on what is deemed to be a valuable resource. The earliest forms of currencies include courier shells in 1200 BC China and beads or trinkets in Native America. In some cultures, animals, properties, and even family members were treated as currency and were used to pay off debts. Coins made from precious metals were later developed and eventually became a main currency. It was only during the 1700s when paper money was used as a currency around the world.

Coins and paper money are still the major currencies today but other forms of currency have also been introduced in the world of debt and credit. In 2009 the bitcoin was introduced as a digital currency but it is yet to be considered as a legal tender in some economies.

Debt Practices and Policies.  The earliest records of debt practices can be traced back to the merchants of Mesopotamia in 3500 BC. Instead of ledgers and loan contracts, clay tablets were used to keep track of debts and payments. Borrowing terms are inscribed on the tablets which are then signed by the borrower’s seal to bind the agreement. It wasn’t until 18th century BC when the first known laws on debt was established. The Code of Hammurabi stipulated loan terms and debt settlement. It required a written contract and a witness for debt agreements. Interest rates, payment terms, and loan collateral were also established. In 1545 England established a cap of 10% legal interest rate and penalized lenders who charge higher rates.

Today countries all over the world have Central Banks who regulate lending rates and interest rates of banks and financial institutions. Unfortunately even with these regulations around  there are still loansharks out there who prey on hard-up folks.

Debt and Credit Management. I hope you don’t get confused with debt and credit. Investopedia defines debt as the amount you owe  and credit as the amount you can borrow.  Just Iike in the old days, a person’s reputation is key to getting credit from merchants and lending institutions. It was a group of English tailors who formalized the use of credit reporting in Great Britain back in 1803. They basically exchange information on customers who settle debts properly and those who don’t. Today there are Credit Rating Agencies that determine the creditworthiness of a borrower. Those who fall behind payments are given negative credit scores while those who settle debts promptly are able to borrow more.

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