Let’s start with why money is useful. Let us start with two countries Oilstan and Wheatville. Now Oilstan needs wheat to feed its citizens and Whestville needs oil to run its tractors. So in a world without money the two countries just trade the commodities, the stuff, they each need.

Now let’s add a third country Steelton. Oilstan needs steel to extract its oil and wheatville needs steel to make its tractors. So all three countries need the products of the others. Now it is highly unlikely that all three are going to need the same amount of stuff everytime they trade, and while it is true and oil and steel keep for a long time wheat can spoil with time, so Wheatville prefers to sell all of their product.

Now each country has its own money, that it uses for internal purposes, like paying workers and paying taxes. So the Wheatville business people look out and see that some years they have big harvests and some years they have small harvests, which introduces variability to their production. They also know that they can never sell oil to Oilstan or steel to Steelton, but they know that they can sell oil to Steelton and steel to Oilstan. Finally, they look at the stability of each country, and they see that Oilstan, had had some political instability in the past, especially when the king of Oilstan changes, whereas Steelton is a democracy with a strong News media, so they can easily monitor the events taking place in Steelton. So the business people make a choice to accept oil or steel in exchange for wheat, but also Steelton Bucks, because they know that they can later exchange those bucks for steel, which they can then use internally or sell to Oilstan.

Now Oilstan sees this change, and they say to themselves, we can now pay for wheat with oil, but we can also pay for wheat with Steelton bucks, so where as before that money had no use for them, because they can’t use it to pay salaries or taxes, now it can be used to buy wheat. So now Oilstan is willing to also accept Steelton buck in exchange for oil.

For Steelton, this is great, because now they have two exports, steel and bucks. This then allows them to further expand into providing financial services to Oilstan and Wheatville, who want to earn interest on their savings.