Long before currency notes came into existence and became a universal medium of financial exchange, gold, silver and copper coins were used as money. Some historical records also state that leather money was used in China in around 118 BC. In fact, China is credited as being the first country to issue currency notes and pave the way for this monetary innovation in other parts of the world. However, policies regulating the circulation of currency notes evolved over centuries, to make them actually usable and universally valid. Paper money got a legal sanction across the globe, following the establishment of central banks in all countries. Let us explore the riveting history of currency notes in detail.
Interesting & Amazing Information On Origin & Background Of Paper Money
The roots of currency notes can be traced to pre-modern China, where paper money was introduced for the first time, to escape the burdensome practice of exchanging thousands of copper coins every time a fiscal deal was made. This economic transition was a gradual process that continued over the late Tang Dynasty (618-907) and the Song Dynasty (960-1279). In the 10th century, Song Dynasty began using currency notes as a means of exchange with traders in their monopolized salt industry. During this time, several shops were granted the prerogative to issue banknotes. The government took control of these shops in the 12th century to produce state-issued currency, though the banknotes remained temporary and only regionally-valid for more time to come.
It was only in the mid-13th century that a standard and uniform paper money issued by the government became a nationally acceptable currency. The massive production of paper money in China, in those times, was made possible by techniques of woodblock printing and Bi Sheng's movable type of printing. This was also the time when a vibrant monetary economy also evolved in the medieval Islamic world, due to the intensifying levels of the circulation of a stable high-value currency (Dinar). The Muslim economists introduced many monetary innovations, including cheques, promissory notes, savings accounts, transactional accounts, loans, trusts, exchange rates, the transfer of credit and debt, and banking institutions for loans and deposits.
The roots of currency notes in Europe were laid in Sweden. The European country had copper in abundance and it began issuing paper notes stating the possession of a given amount of copper, so that traders could be saved from the burden of carrying big copper coins. The paper currency had many advantages, such as reducing the transport of gold and silver, thus lowering the risks involved. However, it had its disadvantages as well, such as the creation of an inflationary bubble if excess of paper money was printed. This inflationary bubble could collapse, in case people began demanding hard money causing the demand of paper money to fall to zilch. It was for this reason that paper money was still held in suspicion in Europe and America.
These concerns led to the practice of many nations establishing mints to print money and mint coins, and hold gold and silver stocks to back up the printed paper money. The creation of central banks across nations also marked significant changes in the currency-issuing policy. In the late 18th century and through the 19th century, the monopoly to issue currency rested with a central monetary authority, whose notes came to be accepted for "all debts - public and private". This led to the creation of a truly national currency that was backed by the government’s treasury, containing gold and silver.
By 1900, paper notes and silver coins became widely accepted as a medium of exchange, with private banks and governments of the world following the Gresham's Law: keeping gold and silver paid, but paying out in notes. By the 20th century, currency notes became universally accepted, as countries started confiscating all the privately held gold to back up their currency notes. The last country to confiscate all private gold was US, following Presidential orders from Franklin D. Roosevelt in 1933. In recent times, a three-letter system of codes for different currencies has been introduced by the International Organization for Standardization. This has been done to remove the confusion regarding the existence of dozens of currencies called Dollars, and some others called Franc.