Basically, start off by establishing the idea of "types of money".
My Econ professor used the story of the lost Yap islander coin as an example of how currency works (as mentioned on Wiki:
http://en.wikipedia.org/wiki/Rai_stones). I like it because it combines the idea of proof-of-work-based currency with the origin of fiat money, and the idea that money is really a record of transactions more than anything else.
These people known as the Yap islanders would trade goods between their various islands, and keep track of which islands were importing more than their fair share. Every once in a while, these islands would be required to construct and deliver large stone coins: huge limestone disks with a hole in the center. This stone money was very hard to make, since limestone could only be found in one of the other nearby archipelagos, and the stone had to be quarried and worked with hand tools and transported by canoe.
In one instance, an island that had been running a large trade deficit had been requested to pay another island with stone money. So they went to where the limestone was, dug out a huge disk, brought it home, put a hole in it, put it on a canoe, and brought it halfway to the other island before the canoe sank, leaving the enormous stone coin under 30 feet of seawater. Everyone was worried, because it was widely believed that if the importing island couldn't pay off their debts, there might be war. Representatives from the importing island met with representatives of the exporting island, and argued and harangued, and it was eventually decided that the exporting island would honor the coin, and treat the debt as paid. As long as both islands knew the coin was there, and who owned it, it didn't really matter that it was at the bottom of the ocean.
So war was averted. And once a year, every year, for hundreds of years after that, the exporting island sent someone to sail out to where their coin was, dive 30 feet underwater, and check that the coin was still there.
