Saturday, November 26, 2011


The first paper money was probably made in China. The Italian explorer Marco Polo had seen it being used there in the late A.D 1200s. These Chinese bills were large and were printed on paper made from Mulberry Bark. Though they had little intrinsic value these bills could be exchanged for valuable metals.

The paper money used today developed from a custom that existed in England during the 1600s. People would store their gold in the vaults of goldsmiths, who gave written receipts for the gold. These receipts circulated as money and businessmen accepted these receipts.

After 1650, with the rise of the national banks, the use of paper money increased greatly. The banks would issue notes to people who deposited money with them.

Paper money appeared in North America in 1685. Such money consisted of playing cards used in Canadian colonies. Each card was marked with a certain value and signed by Colonia Governor. These cards were widely accepted and used for nearly 70 years.

The use of paper money and bank notes received an impetus in the late 18th and early 19th centuries as private companies and even individuals issued fiduciary money, based on a promise to pay specified amounts in gold or silver. Eventually the government stepped in and began to issue fiat money, whose value was guaranteed by the State. In times of crises, when governments suspended payment of gold for bank notes, paper money became devalued. This occurred in Britain during the Napoleonic Wars (1801-1815) and in the United States during the Civil war (1861-1865).

After World War 1, Germany over issued paper money and therefore, its monetary system collapsed. Essentially the same thing happened in Hungary after World War 2 when the “pengo” became worthless. It was also in the 1930s that the old established international gold standard collapsed and was finally abandoned.

Production of various goods for consumption increased with the industrial development of the world and thereby money became an absolute necessity for people to exchange these goods. in this scenario different countries had their own monetary unit to carry out transitions and the control of money was the responsibility of the Central Bank, Government Treasury or a Monetary Authority. With the world economic development international transactions increased substantially, especially in the developed countries resulting in the wide use of British Pound, French Franc, German Mark and the American Dollar.