Currency, or money, is a certain commodity against which goods are exchanged, in most of the interpersonal exchanges of a society. The big advantage of money, over direct barter, is that it can be measured in discrete homogeneous units, and therefore provides a way of reckoning costs and revenues in common terms.
Certainly, a society can support multiple tenders. There's no theoretical reason why people couldn't negotiate prices in dollars, yen, pounds sterling, euros, shekels, moles of platinum, kilograms of wheat, hair elastics, or Spanish dubloons in different exchanges and contracts with different people, all within the same society. In fact, that's really what we do, and in most countries there are no laws governing how voluntary transactions are to be paid for (since legal tender laws only apply to debts and taxes). But for a number of reasons, mostly convenience and security, one form of currency will tend to supplant the others, ceteris paribus.
Like barter, money is traded en masse for goods and services. The units of currency are therefore not units of value;* they are units of a quantity of a substance. If a lamp is priced at $20, it does not mean that the value of the lamp is $20, but that the person who owns the lamp wants one "bushel" of money, consisting of twenty dollars' worth of money, before he'll give you the lamp. If a plot of real estate is appraised at $30 000, it doesn't mean that the value of the land is $30 000, but rather that the appraiser is telling you that you can very likely find someone who will give you one big wad of money, consisting of $30 000, in exchange for ownership of that land. This is the reason that many of the early currencies of our civilization – notably the pound – were named after weights; they originally referred to a certain mass of precious metal (in the case of pounds, of silver).
So, how does a prospective seller know how much money the value of his product is equal to? The thing is, he never does. First of all, the money he will ask for must be enough so that it is, as far as he's concerned, better than the product he's selling. After all, if the amount of money were just as valuable to him as the product, he'd be just as good off keeping the product for himself. On the other hand, the same is true of the prospective buyer: she wants something that is more valuable to her than the money she has in her hand. In order to find the optimal balance of interests, the two parties haggle.
The nature of Euro-Saxon customs for pricing most day-to-day commodities and services are probably the main source of the misconception that money is a measure of value. In Euro-Saxon shop pricing, the seller assigns a certain price to his commodity, and if the buyer isn't prepared to part with that much money, then she simply walks away. This doesn't look like haggling, but is actually part of an extended haggle that occurs over the course of months and involves thousands of individual consumers.
It is much like the haggling of a shy jungle band with a cautious sedentary village: The villagers find a clearing and leave a pile of goods there, then retreat back into the forest. Then, the forest people enter the clearing, and leave a pile of goods they're willing to trade. Then they retreat back towards their own encampment. The villagers return, compare the two piles, and if they're satisfied with the pricing, they take what has been offered to them and go home, leaving their own offering for the foresters. If they aren't satisfied, then they may add something to their own pile, or separate something from the pile offered to them to indicate they don't want it. Then the foresters return and judge the piles. This continues back and forth, with each side modifying its offer and its terms, until both sides are satisfied. Although at no time is there any vocal haggling like we might find in the streets of Guayaquil, or at a Sotheby's auction, it is clearly haggling nonetheless. Anthropologists refer to it as "dumb barter" or "silent trade."
In the Euro-Saxon pricing scheme, the seller's opening price is based on the amount of money exchanged in the past for similar products, of comparable quality and cost to produce, exchanged under similar conditions as those he expects to be selling under himself. A prospective buyer will simply not purchase the product or avail herself of the service if she is not satisfied with this asking price – ie., if she expects that she could get something more valuable to her, personally, for the same amount of money somewhere else. If this occurs so consistently that the seller cannot profit or even break even on the rate of sales he is turning, if he is to have any hope of recuperating his investment he will have to lower prices. This is not because he "mismeasured" the value of his product, but because he misjudged how valuable it would be, compared ordinally to the lump sum for which he was asking, to the consumer. In this way, we haggle "blind," just like the foresters and villagers.
This is how prices are negotiated; this is how we haggle. A standard of currency is a commodity which is used as one element of a barter in most of a society's exchanges. The precise amount of money used in a given exchange is negotiated, and is a measure of price. If the exchange is profitable to the consumer, then the amount of money asked for by the seller will be less valuable to her than the product being sold. If the exchange is profitable to the seller, then the amount of money he is asking for will be more valuable to him than the product he's trying to get rid of. Because these valuations are ordinal (most valuable vs. least valuable) and are relative, mutually profitable exchange is possible. But these facts also mean that it is impossible to quantify value. Reasonable pricing has nothing to do with whether the "value" of the money is "equal" to the value of the product. It is simply old-fashioned barter using a univeral bartering medium: money.
Currency is older than even written history, and is present in almost every society in some form. The Iroquois Confederacy used wampum, or belts of bead designs, to cement contracts between citizens. In some African cultures, cattle were used for the exchange of any other good, from land to dowry. The Kula Ring of the South Pacific consists of a number of cultures who trade kula, or shell jewlery, amongst one another for ceremonial purposes. Even in "advanced" societies, in dire times, the social structure supporting some one medium may collapse, leaving a void in which some more unusual media have the opportunity to arise: – in colonial Quebec, playing cards signed by the Gouverneur were used; after World War II in Europe, cigarettes were considered standard (if not legal) tender. As social organization becomes more complex, however, the value of a general medium of barter becomes ever more apparent, and some object will gain more currency.
Since the Bronze Age, the most common medium of exchange was precious metal. Gold, because of its scarcity, its malleability, and because it never tarnishes, was for thousands of years considered the most precious of metals, and took on a great deal of symbolic significance. In northern climes, silver was more accessible and so took on the role of currency for the Vikings and for the Anglo-Saxons, but by the Twentieth Century a gold standard prevailed all over the world. Even "pounds sterling" or French argent have not been traded primarily against silver for four hundred years. In the Sixteenth Century, the debasement of silver coins by the government led the people to support a de facto gold standard. Later, tender laws were revised to officially change the official state currency to pounds bullion, though the name "sterling" remains even today, many years after gold was abandoned for the last time.
Throughout the Renaissance period, the security and liberal policies of some small Italian duchies led to increasing wealth for those states, and as a result, business transactions tended to involve more and more gold. At a certain point, trafficking all that gold for an exchange became impractical, and so the actual physical coin was held at warehouse outlets called banks.