1580s, "a metal disk bearing a figure or inscription," from Middle French médaille (15c.), from Italian medaglia "a medal," according to OED from Vulgar Latin *metallea (moneta) "metal (coin)," from Latin metallum (see metal). The other theory [Klein, Barnhart, Watkins] is that medaglia originally meant "coin worth half a denarius," and is from Vulgar Latin *medalia, from Late Latin medialia "little halves," neuter plural of medialis "of the middle" (from PIE root *medhyo- "middle").
Originally in reference to a trinket or charm; by 1610s as a commemorative of a person, institution, or event. As a reward for merit, proficiency, etc., it is attested by 1751. A medal is distinguished from a coin by not being intended to serve as a medium of exchange, but in 18c. English, as in older French and Italian, it was applied to old coins no longer in circulation kept as curiosities. Related: Medallic.