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Fairies are small winged humanoids, about 10 cm in height at most. They can proportionally carry more than a human, but not much in absolute terms. Previously, fairies have lives in their own smaller, separate societies away from humans and have had no need for money.

Now, humans have begun settling in fairy lands. There hasn't been much conflict, instead the fairies have begun integrating themselves in the human towns and villages. They live partially in their own little enclaves that provide for their own, but there is also economic activity between species Which is increasing over time. Fairies are realizing that humans can easily provide large (for them) amounts of food and other bulk goods and humans realize fairies are good at many types of fine craft and detail work while requiring less pay.

Humans have an established currency system with coins and banknotes, all made of a size to fit in and be handled by human hands. Most humans, especially common traders, prefer all payment to be given and received in this currency as it is stable and widely accepted. For a fairy however, it is simply impractical to handle. The coins contain precious metals and weigh too much to carry more than a few, and the banknotes, while lighter, are big and unwieldy and don't handle folding too well.

How will this be solved? The tech level is late medieval/early renaissance, and while magic exists it is rare and not available to most people. The fairies can use innate magic for flight and simple illusions and not much else.

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    $\begingroup$ A bank note by the name itself is a Note from Bank. Otherwise called a "check" How large are thay are totally irrelevant as long as it have all bells and whistles that the thing is worth X. $\endgroup$ – SZCZERZO KŁY Aug 26 at 11:55
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    $\begingroup$ Are these fairies the fairytale-type or essentially small humans? More specifically, are they psychologically capable of understanding a capitalistic system with concepts like jobs and money? $\endgroup$ – Dragongeek Aug 26 at 16:52
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    $\begingroup$ Something else to consider might be the need for different denominations for the tiny folk. The smallest human coins represent the smallest practical unit of trade, so one penny might buy one loaf of bread. But that one loaf of bread would feed a fairy for years, so they'll have a need to purchase goods by the hundredth- or thousandth-penny. $\endgroup$ – Nuclear Hoagie Aug 26 at 19:48
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    $\begingroup$ You might be underestimating how amazingly expensive gold is. It wasn't always the crazy £50/g it's now, but an early medieval nomisma, or roughly one month's labourer's wage, could buy you a pig and weighed only 4 grams. Using square-cube law, a fairy 20 times smaller than a human can carry 400 times less but weighs 8000 times less. So their own weight is negligible, but they could carry maybe 100 grams in a "heavy" backpack, or over 20 golden coins - enough to build a fairy village from scratch? $\endgroup$ – BIOStheZerg Aug 27 at 7:52
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    $\begingroup$ while requiring less pay - Are you sure about this? Obviously you wouldn't hire a fairy to be a bricklayer, but certain types of jobs are not going to be (majorly) dependent on the size of the employee, and a smart fairy should be able to argue that they should be paid the same as a human counterpart. For small craft work, they should be able to argue that they need to be paid more, as it may be impossible for humans to even perform the required work. $\endgroup$ – Clockwork-Muse Aug 27 at 17:31

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I can see a huge market for fairy (or human) merchants doing most of the buying and selling of human goods, which to them will be in bulk, and acting as an intermediary between the two groups. The fairies could mostly use their own currency among themselves or use a debt/credit system (which is what most people did in the real world anyway). Coin trading was used mostly for strangers. Use of tally sticks (debt tracking) persisted for hundreds or even thousands of years in many places.

These merchants could easily double as banks, storing coins, and issuing banknotes. In many ways, this is how real banks get started. If you are worried about the power imbalance the merchants will have to make them community-run shops/banks run by elected officials.

Your biggest issue is there is not much labor that fairies can do better than humans, those they can often involve an intermediary anyway, (pin maker, mapping, scouting, lighting, ect.) so direct trade is less of an issue. They will have to worry about company stores/scripts.

What would really happen in the long term is the coinage would adapt, just like it did when long-distance trade became common. Smaller lighter fractional coins will come into existence.

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Credit letters were used already by medieval bankers to avoid customers bringing around large amount of money.

They simply need to be made smaller, so that fairies can carry them around, but still human readable, so that humans can verify and accept them.

For small amounts the receiver can use a credit note which is then covered at the end of a time period. Not much different than what was common practice in small villages until few years ago, where most of the residents would tell the shop owner "write it down" and then pay the due the day they got their salary/pension.

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    $\begingroup$ Humans, being the economically minded folk we are, would no doubt be falling over themselves to engineer tender that could be used by all species. $\endgroup$ – Joe Bloggs Aug 26 at 12:05
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    $\begingroup$ @JoeBloggs um... huh? As a species we're very competitive and tend to go out of our way to gather all wealth unto ourselves and exclude all others. Humans excluded slaves by refusing to teach them literacy and math (so they couldn't use money, among other things). I can only imagine what we'd do to creatures that weren't human. $\endgroup$ – JBH Aug 26 at 15:23
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    $\begingroup$ @JBH: If we’re at the point where we’re trying to use fiat currency to perform economic exchanges with them? We’d make the act of paying for goods and services as easy as possible to better facilitate the transfer of wealth from them to us. Then we’d give some of it back to them in the form of trickle down economics and call ourselves job creators. $\endgroup$ – Joe Bloggs Aug 26 at 17:51
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    $\begingroup$ @JoeBloggs Hah! Reaganomics to control another species! OK, that part of me that's a good Republican applauds your brilliant assimilation of the fairy peoples and their lands without firing a shot. :-) $\endgroup$ – JBH Aug 26 at 18:46
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    $\begingroup$ @JBH For my next trick: manufacturing outrage by leaking memos about the Minister for Dwarf Relations calling the elves ‘pointy eared wazzocks’ and using that as a smokescreen to distract from the annexation of the Orclands. Which I totally didn’t do. Honestly. They had a legitimate referendum that nobody tampered with... $\endgroup$ – Joe Bloggs Aug 26 at 21:45
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Checks

Checks are not a new invention. There is evidence they existed as early as 352 BCE, though they didn't catch on until the 1500s. With the pressure for fairy trading, checks have much more reason to catch on.

Smaller Banknotes

Paper money is just fine if the money is simply resized to the size of a postage stamp. Fairies could easily carry them in a briefcase or backpack, but it's also not too small for humans to manage.

Favor Economy

If your fairies are of the variety that always keeps their word and have built society around the mutual exchange of favors / deals, trading becomes a matter of exchanging goods for services and services for goods.

This would focus on the things that each race is good at. Fairies would be good at delivering messages and building intricate things like watches, rings, and magical trinkets while humans would be better for building structures and transporting goods. A human in need of message delivery might feed a fairy in exchange for that service while a fairy might offer to create an engagement ring for a human in exchange for that human building the fairy a new house.

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As a solution that may integrated another side to your story, it can be pretty "realistic" that fairies can use a bit of magic to bewitch a companion (exemple big dog or another) that may carry both money and other stuff.

As further developpement you can imagine a most imperfect situation where the fairies have to sleep with their companion on the street. Companion also gives you characters that may be useful for story or actions.

As the fairy are 10 cm and if the companions are big enough maybe some have designed little home that the companion can carry.

That's some ideas i can have

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  • $\begingroup$ No need to even use bewitchment IMO. If humans can domesticate an elephant, there is no reason a fairy would not be able to do the same with a dog. $\endgroup$ – Nosajimiki Aug 31 at 15:52
  • $\begingroup$ They are fairies so it is simply a way to use the magic and as the companion are carrying the money and maybe many other stuffs, it would be pretty good they don't run away. Plus domestication may be pretty long and for reasons fairy may not have the time to domesticate $\endgroup$ – Ximaze Sep 1 at 6:23
  • $\begingroup$ I agree it would normally be on trope for fairies, but the OP stated "The fairies can use innate magic for flight and simple illusions and not much else" So, if you are trying to answer the question as asked I was simply pointing out that magic is not necessary since the OP seems to be looking for a preferably non-magical answer. $\endgroup$ – Nosajimiki Sep 1 at 14:18
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For in-shop trading where the fairy is selling her items from inside the shop, storing currency should not be an issue. Where fairy can have a simple box that the customer himself can operate to put money into and take back change, It basically works on the trust factor and self-help nature of the customer.

For outside trading with amount of cash exceeding banknotes or coins that a single fairy can carry, They have human handlers, just like accountants these days. These accountants do the heavy lifting, transactions, and whatever is required, while charging nominally, as a single accountant can serve multiple fairies. A really rich boss fairy can afford to have a dedicated accountant for herself.

These accountants may also serve as points of contact when fairies need to spend the money on their utilities, or human shopkeepers may provide free of cost support for fairies as a special customer care service.

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Proxies and Credit

IMO There isn't a solution that will allow fairies to participate with currency directly. You don't define the technology level of the human society, so I'm going to jump to the conclusion it's mid-medieval castles-and-swords. That means money based on metal.

Now, unlike most fantasy stories, metal coinage was rarely as heavy as the stories portray. Stamping coins was a painful process, so coins tended to be small and thin. Because of that (and because of the fluctuating value, no complex economies back then!) people tended to cut the coins up to get smaller denominations (which is where "pieces of eight" came from, cutting the coins up into eight pieces) or they'd shave metal off the coin edges to "forge" new coins (you'd be surprised at all the phrases and idioms that generated, like using the word "nick" to describe stealing something and using the word "forgery" to describe counterfeiting).

But even if we're dealing with pieces of coins, those are still huge objects to a fairy, and objects of low value to boot.

Proxies

If the fairy market is valuable enough, I can believe that humans (for a reasonable fee, of course) would develop a career acting as financial proxies. Everything from being the dude who hauls around the coin purse to being the CPA of the fairy world. This would develop a whole bundle of laws and punishments to establish responsible trust (hah), but it's possible. The value of the fairy market is the key! If it's valuable enough, the government will establish licensing and suitable punishments ("Let's cut you into eight pieces, then!"). If it's not valuable, it's just a thieve's market.

Credit

Banks could be the foundation of the proxy system and could therefore develop a simple credit-based bearer-bond system for payment. I spent a couple of years in Finland where they have something called a "pankkisiirto." Think of it as a "counter check." Almost everything mundane (like rent) was paid by pankkisiirtot. Carrying this idea into the fairy world, merchants would have a stack of blank "counter checks" available. At the end of the transaction, they'd fill it out, everybody would sign it, and it would be turned into the bank for processing — not unlike the early credit card stamping machines (remember those? That'll date ya!).

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I don't think will be a problem at all, if you consider how much money fairies are likely to earn and spend.

Assuming that precious metals are more valuable by weight than food. A fairy could buy more food than they can carry with as many coins as they can carry.

Terry Pratchett explores this a little bit in Feet of Clay; paraphrasing 'A dollar will buy a loaf of bread which will feed a human family for a day, the same loaf will feed a gnome family for a whole week.'

If you would allow the currency to be chopped into small pieces, the fairies would be happy with an eighth of a coin in payment for some service, and use it to buy a thimble-full of flour.

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  • $\begingroup$ Actually, hacksilver was a thing in pre-mint times. $\endgroup$ – toolforger Aug 31 at 16:07
  • $\begingroup$ Keep in mind disc-world gnomes are as strong as human. so carrying the discworld's sequin sized coins is not much of an issue. $\endgroup$ – John Sep 2 at 0:21
  • $\begingroup$ @john, true, but in their case they do handle the same quantities of cash as humans, I'm suggesting that they don't actually need to. $\endgroup$ – JeffUK Sep 2 at 10:54
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They may prefer the stable and widely accepted currency, but any merchant who insists on it when it's impractical for customers is simply going to be cut out of the loop. Losing customers because you don't like their money is a good way to go out of business.

It is possible that there are fairy middlemen, if only because what is a retail sale to a merchant may be a bulk purchase to a fairy. (There are stores in Africa where traders come in, buy boxes of matches or bottles of perfume, and then go out and sell the matches in bundles of three or perfume by the drop, and that's with humans on both sides.) But it is likely that at least some human merchants will want in on the fairy retail side.

Also, fairy-side solutions, if onerous or requiring a long-term investment from the fairy, are something that a merchant can work with to get his cut.

One simple one is running tabs. A merchant may perhaps secure fairy magic to ensure that fairies settle up in the long run, but a regular customer can order the goods and then pay up either on a regular schedule, or have the merchant send someone to collect the purchase price from the fairy's home. (There would, of course, be a surcharge if the merchant is usually cash and carry. However, many stores ran tabs in that era, and for humans.)

Another one is developing a fairy-scaled currency. The merchants, being fewer and dealing with more money, have an advantage here over the individual fairies.

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  • $\begingroup$ " Losing customers because you don't like their money is a good way to go out of business." citation needed. Especially given the counter examples available from Southern US segregation, SA Apartheid and UK Gay Cakes current issues. $\endgroup$ – Jontia Aug 27 at 9:57
  • $\begingroup$ What counter-examples from South Africa? There were places where white residents were a minority when the region was, legally, whites only. $\endgroup$ – Mary Aug 27 at 12:41
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Frame challenge: Coins and notes are not standard methods of payment in medieval or early-renaissance societies.

Notes didn't even exist, not in the modern, fiat-money sense anyway.
Coins were in use, but only for storing value and for big transactions; they were just too expensive to produce to be available in the quantities needed for day-to-day quantities.

Instead, people would simply write up what was owed, and pay back either when the sum reached a level good enough for a coin, or (more usually) when reverse services or goods were rendered the owed amount would go down.
Owed amounts weren'd in fractions of coin but in units of actual produce, such as "John drank this many beers: ||| and ate this many meals: |" - and the tavern owner would make sure that he got paid before John would leave the village.

Everybody tracks what's owed by somebody else, disputes would be settled by the community - works for them, you need money only when trading with people you don't know.

Fairies would simply live in such a barter economy.

Now for fairies who are into "big money" (well, money at all), they would simply use the services of a bank. Or they would have a human accountant treasurer to carrying all the bulky weight around, or rather keep it safely locked most of the time.
Just like they would rely on helpers for shipping large amounts of material, or doing long-distance trading. If fairies are into such a thing; it all depends on whether fairies do have a knack for and interest in accumulating wealth - author's choice.

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  • $\begingroup$ The idea of bank notes goes back to at least the 10th century CE. They were invented by the Templars as an alternative to carrying coinage on long pilgrimages; so, they did exist and did become popular for a little while until the Papacy stepped in and outlawed them. This is to say, bank notes are a perfectly acceptable medieval level technology, they were just uncommon in our own history do to a specific constraint. A fantasy setting without the Papacy could easily see the widespread use of banknotes. $\endgroup$ – Nosajimiki Aug 31 at 15:50
  • $\begingroup$ These were merely promissory notes. A precursor to today's legal tender, but in 1000 CE, people would have laughed at the idea of forcing people to accept payment (settling a payment obligation) with a specific currency. Templar notes would be accepted because the Templar were widely known to honor them, but even these wouldn't be accepted e.g. for day-to-day market purchases (they were more like BTC in our days: valuable but not liked by officials, good only for international transactions, not for value storage). $\endgroup$ – toolforger Aug 31 at 16:04
  • $\begingroup$ coins did see a lot of use for traveling, where you were a stranger and thus not to be trusted with debt. $\endgroup$ – John Sep 2 at 0:25
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Two pegged (fiat) currencies.

Everyone knows that a fairy dollar is just as good as a human dollar, except that one of them is hard to handle for humans and the other for fairies.

Businesses that need to handle large sums in both currencies just employ accountants/cashiers from both species.

Edit: depending on inter-species politics, it may as well be a single currency with coins/notes issued in two sizes.

It may as well (at some early point) not be a fiat currency. It will be just that fairies use mainly gold and humans use silver (way larger for the same value).

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I see an opportunity for conflict or at least tension, and if it were me I'd use it. Don't be so quick to solve every problem; use it to build on to the story.

Perhaps fairies CAN'T participate in the economy in that way. Maybe they need to trade in gems or exchange services for goods.

If they have to use gemstones it gives some humans the impression that fairies are all wealthy, which creates a feeling of inequity and resentment. Most people aren't going to know WHY the dynamic is the way it is, and it can play into all sorts of mischief.

Here's a random thought as a possible solution: humans are not magical but it's not alien to them either, and those who want to trade with fairies can acquire feystones. When an agreement is struck, the fairy puts its hand on a feystone and it draws on some of their inherent magic and stores it. For the fairy, it's like a blood transfusion - they'll recover but they can't give up too much at once. For the human, they can either trade the power in their feystones to people who know how to use it, or perhaps the stones themselves contain a simple spell that needs to be charged - I'm thinking of something simple - maybe it glows brighter and longer than candles, or powers a ward that protects their home or place of business.

Don't get locked into the idea of money-for-money. Money just represents value, and it's the value that drives an economy. Lots of ways to get around that.

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High value coin clipping would become more common

Ancient and medieval society was primarily based on the bullion system where the value of a coin came primarily from the weight and types of metals used, and the actual coins themselves were not that important. This was especially true when trading between cultures. This means that when you have a coin that is worth too much, you could clip it (cut it into smaller pieces) and the pieces would still be considered legal currency.

Depending on when and where you are talking about, a fair day's worth of labor was normally considered worth about 80-240 grams of copper, 4-12 grams of silver, and 0.2-0.6 grams of gold with the average coin weight being around 8 grams. This is all of course a huge oversimplification since we are talking about hundreds of societies across centuries of economic variation, but these seem to be about the averages in Europe throughout history.

As often as pop culture makes references to "gold" in terms of historical currencies, gold was not commonly used in day-to-day life in the medieval world because it was worth too much. A single gold coin could represent your entire month's income for a typical lower-middle class freeman. Instead gold was mostly only really used when making very big state level transactions.

Now in the case of your fairies, these smaller coin pieces would be far more convenient than full sized coins; so, instead of being paid with a stack of copper or silver coins at the end of the week, they would more likely accept a single piece of clipped gold coin. These clipped gold coins could then be traded back to the humans for what the fairies would perceive as bulk transactions, or they could be further broken down and re-minted by the fairies to make even smaller coins that make more since for use in their own community. Tiny little beads of gold could be worth just as much as a human sized copper coin; so, by trading primarily in gold the fairies could carry just as much value of coinage on their person as the typical human would carry in silver and copper.

Based on all of this, when dealing with historical fantasy settings I prefer to keep things simple with the 1/20th : 1 : 20 rule where by a copper coin represents 1/20th of a day wage, a silver coin is a day wage, and a gold coin is 20 days wages unless you plan to use a specific coinage system from a specific place and era. Since "day wages" were normally based on the pay given to a common soldier, and the average US common soldier makes 12.50 USD/hr, this means we can estimate the average value of historical European bullion coins to be approximately:

  • Copper = \$5
  • Silver = \$100
  • Gold = \$2000

So, even if your fantasy setting says that a fairy's coin pouch is only big enough for 1-2 coins, you can see that using a gold standard would still allow them to carry quite a bit of money on their person.

The biggest hurdle will be trust

The fairies can use innate magic for flight and simple illusions and not much else

A species that can naturally cast illusions makes the use of currency (and commerce in general) much harder. Sure, it is easy for a human to give a fairy a gold sliver in payment for a service, but what happens when a fairy tries to pay a human in gold? Is the fairy really giving you gold or is is a piece of lead that has been illusioned to look like gold?

Your human merchants will need a simple and reliable method for dispelling fairy illusions or else the lack of trust will eventually cause the humans to ostracized or even drive off the fairies from their town.

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  • $\begingroup$ actually lead that looks like gold has been a problem since coins were invented, faeries are not making it much more problematic. $\endgroup$ – John Sep 2 at 0:11
  • $\begingroup$ Most cases of gold counterfeiting are easily tested for by scoring or biting the coin to see if it's gold plated and the right hardness. I am simply suggesting that faerie illusions need to be similarly testable. $\endgroup$ – Nosajimiki Sep 2 at 3:37
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The fact that fairies can fly means they can provide a very secure means of transporting money. Small squads or even large swarms of fairies would be able to transport large sums, and the speed of their travel means they can facilitate inter-bank settlement very quickly, compared to other creatures.

Additionally, they can have very tall shelves where they keep records and access the records very quickly.

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    $\begingroup$ OP is not asking what fairies would be used for, but how could they handle money. $\endgroup$ – L.Dutch - Reinstate Monica Aug 27 at 6:52
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You have a fundamental economic mistake going on here:

"The coins contain precious metals and weigh too much to carry more than a few, and the banknotes, while lighter, are big and unwieldy and don't handle folding too well."

You are basically mixing gold-backed currency with government-backed currency. Today we have government-backed currency. Which means that none of our currency - even the penny - is worth in precious metal value what it's face value us. But you are saying the coinage is "precious metals" that is the actual metal of the coin currency has value - while the banknote value of the paper the banknote is on is zero.

For currency to exist that has no actual value of the currency itself, you have to have a government around that will back it. This is why coins were used in ancient times - because for example the government of one city would have given zero value to the government of another city. You could, for example, take a wagonload of wheat to 1 city where it was worth maybe 1 gold coin, then take that coin to another city and buy maybe 2 wagonloads of wheat (because in that other city, wheat was more common) and then spend time going back and forth transporting wheat and amassing a large stack of gold coins. (and there were people that did just that)

But a scheme like that could not exist if you took a banknote in trade for the wagonload of wheat because when you got to the other city, the banknote would be worthless.

You have to either completely dispense with government-backed currency (which means coins and gems only) or dispense with gold-backed currency (coins where the value of the metal is equal to the value of the coin). If you mix the two you will have people melting down coins for the metal and thus destroying the economic system because they will be affecting the money supply.

If you go with gold backed currency then the fairies can carry precious gems pretty easily (small ones, obviously)

If you go with government-backed currency then that solves the problem because the "fairy government" will back whatever tiny banknote is printed that is easy for the fairies to carry so the merchant will happily accept it because at the end of the week he can take the thimble full of fairy banknotes to the fairy government and get it exchanged for "big people" banknotes.

In Fantasy stories people often like to dispense with the simple fact that currency is mainly tied to governments. Governments are annoying things to have around since they introduce politics and politics complicates a simplistic idea of Good and Evil. So you have lines like from Lord of the Rings where Barliman Butterbur compensates for stolen horses with "12 silver pennies" with zero mention of what government minted these pennies, where the silver came from, whether the pennies will be even of any value the moment they leave Bree, or if 12 silver pennies can buy the same number of horses anywhere else in Middle Earth (most likely, they can't) and are thus even a fair compensation at all.

In summary, the moment you said "established currency system" you are bringing in a whole set of things you are not considering that makes the problem you think exists, not exist at all. Any sort of established currency system will be only on ONE standard - gold or government - and either of those can easily handle this problem. You just need to pick which one it is.

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  • $\begingroup$ most government backed currency was gold backed for most of the history of government backed currency. Most of the world had metal backed currency until the 70's. Most banknotes were backed by gold or silver for most of history. $\endgroup$ – John Aug 31 at 12:01
  • $\begingroup$ The notion that those currencies were gold backed is false - they WERE government backed because people had faith that the government would give equivalent amount of gold in exchange for the currency. They were "gold standard" meaning that the governments standardized the rates of exchange against a precious metal but any banknote currency is only worth what the faith people have in the government that issues it - it's government-backed. $\endgroup$ – Ted Mittelstaedt Sep 2 at 0:02
  • $\begingroup$ Not a convincing, unless you are arguing fiat currency is not the same as government backed money. the value was based on gold becasue they government had to trade it for silver or gold if you turned it in, by your argument every currency ever issued by a government was only government backed and no government ever issued gold backed (commodity) money. this is part of the reason the gold standard ended because there was not enough commodity to match the economy and people kept turning in the currency. $\endgroup$ – John Sep 2 at 0:08
  • $\begingroup$ No, what I am saying is that any government that issues currency where the currency/money itself has no value (such as a banknote) must be trusted by people to back the currency in some way, whether fiat backing or currency backing. THE VALUE OF ANY CURRENCY, WHETHER A COMMODITY OR A FIAT CURRENCY, IS ONLY RELATIVE TO WHAT PEOPLE ----T-H-I-N-K--- it's worth!!! With ancient times and ancient governments, nobody thought any currency issued by any government was worth anything other than what it would be melted down. $\endgroup$ – Ted Mittelstaedt Sep 4 at 7:40
  • $\begingroup$ Which was also true of paper money it was worth X units of gold. Bank notes were often traded between cities but were devalued depending on distance and size of the bank, bank note exchange rates were a common thing. with early coins the government issued coins was a guarantee of value because it was a guarantee of purity. the Romans issued coins with standardized values. Your answer is not helpful because bank notes and government issued standardized coins did coexist for a long time. $\endgroup$ – John Sep 4 at 10:08

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