American Numismatic Society
American Numismatic Society

Drachmas, Doubloons and Dollars: The History of Money

Paper Currency of the World


The first true paper money was produced by the Jin Dynasty (1115-1234) of China in 1189. However, it was not used in the West until 1661, when the Stockholm Banco issued credit notes in an attempt to back the value of Swedish plate money (see Case 7) Letters of credit had been used previously by medieval bankers, but fully transferable bank notes were a new innovation.

Bank notes were viewed as a medium for transferring money, rather than as money in their own right. Individuals could take their paper notes to the bank to redeem them for gold and silver coins with intrinsic value. Paper money was only good so long as people had confidence that the banks would cash it on demand. Otherwise, masses of people would attempt to redeem their paper money at once, thereby rendering it worthless and ruining banks. The temptation to print more money than could be covered by precious metal reserves was also a frequent hazard.

By 1971, every country had given up the gold standard, thereby ending the possibility of converting paper currency into precious metal. This change created a "floating currency" system in which the value of paper money (and the fiduciary coinage that circulates with it) is dictated entirely by public confidence and international market forces.

By the 20th century, although coin design had become more conservative than in the past, paper money had blossomed into a new canvas for creative artistic expression at the hands of skilled engravers.