Since money is really just a representation of value, it didn't take long for people to realize they could just send information about money by telegraph or other electronic means, and it was just as "real" as sending the money itself. After World War II, banks would record information about the day's transactions onto large magnetic reels, which were taken to the regional Federal Reserve Bank. This system eliminated the need for the large denominations that were printed prior to the war to facilitate these large-scale transfers. Today, the $500, $1,000, $5,000, and $10,000 bills printed during this period are very rare, though some are still in circulation.
Later, wire connections were established between the banks, so the transfer information could be sent directly.
By the early 1990s, all transfers between banks and the Federal Reserve were done electronically.
There are three other important steps in the history of electronic money:
- Diners Club issued the first credit card in 1950. At first, credit cards were considered a special perk available mostly to rich businessmen. As soon as banks realized there were billions of dollars to be made by issuing credit to as many people as possible, credit cards exploded. Today's largest credit card company, Visa, started out as the Bank of America, and issued the BankAmericard in 1958. Today, there are over 200 million Visa cards in use in the United States alone.
- The Social Security Administration first offered automatic electronic deposit of money into bank accounts in 1975. Once people became comfortable with the concept of money being added to their accounts without ever holding the cash, the practice spread. People started paying bills, transferring money between accounts, and sending money electronically.
- The growing worldwide acceptance of the Internet has made electronic currency more important than ever before. Purchases can be made through a Web site, with the funds drawn out of an Internet bank account, where the money was originally deposited electronically. People are earning and spending money without ever touching it. In fact, economists estimate that only 8 percent of the world's currency exists as physical cash. The rest exists only on a computer hard drive, in electronic bank accounts around the world.