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Lessons of History

One of the most famous and vivid channels of foreign exchange occurred along the fabled “Silk Road”—over which goods flowed back and forth between Asia, the Middle East, and Europe. The road started in Xian, a city in central China, and went by various trails west. Centuries ago, traders prodded columns of camels loaded with rugs, silks, and bags of aromatic spices that Europeans needed to season their dishes and delight their palates. Through the city's alleys and in its open market spaces, goods were inspected, values suggested, and deals struck. Money and objects changed hands.

This kind of trade is the barter system, which is still the norm in many parts of the world. However, the barter system had flaws. For one, making individual trades was cumbersome and time-consuming. Each item had to be inspected and its worth determined before haggling could even begin.


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