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Paper money, often referred to as a note or a bill (North American English), is a type of negotiable promissory note that is payable to the bearer on demand, making it a form of currency. The main types of paper money are , which are directly issued by political authorities, and issued by , namely banks of issue including . In some cases, paper money may be issued by other entities than governments or banks, for example merchants in pre-modern China and Japan. "Banknote" is often used synonymously for paper money, not least by collectors, but in a narrow sense banknotes are only the subset of paper money that is issued by banks.
Paper money is often, but not always, legal tender, meaning that courts of law are required to recognize them as satisfactory payment of money .
, including the forgery of paper money, is an inherent challenge. It is countered by anticounterfeiting measures in the printing of paper money. Fighting the counterfeiting of notes (and, for banks of ) has been a principal driver of security printing methods development in recent centuries.
Ancient Carthage was purported to have issued government notes on parchment or leather before 146 BC. Hence Carthage may be the oldest user of lightweight promissory notes. In China during the Han dynasty, appeared in 118 BC and were made of leather. Ancient Rome may have used a durable lightweight substance as promissory notes in 57 AD, which have been found in London.
The first documented paper money was issued during the Tang dynasty and Song dynasty of China, starting in the 7th century, called " flying money". (2025). 9780744056273, DK. ISBN 9780744056273 Its roots were in merchant of deposit during the Tang dynasty (618–907), as merchants and desired to avoid the heavy bulk of copper coinage in large commercial transactions. Although government issued centralized paper money did not appear until the 11th century, during the Song dynasty.
In Europe, cloth notes were in use in Prague in 960 and as part of the banking scheme of the Knights Templars around 1150.
The first European attempt by a bank of issue at issuing banknotes was in 1661 by Stockholms Banco, whose legacy was soon taken over by Sweden's Sveriges Riksbank. The French Revolution resulted in the mass issuance of government notes known as whose value soon collapsed, leading Napoleon to establish the Bank of France to issue paper banknotes in the early 1800s.
Cash paper money originated as receipts for value held on account "value received", and should not be conflated with promissory "sight bills," which were issued with a promise to convert at a later date.
The perception of paper money as currency has evolved over time. Originally, money was based on precious metals, or commodity money. Paper money was seen by some as an I.O.U. or promissory note: a promise to pay someone in precious metal on presentation (see representative money). But they were readily accepted—for convenience and security—in London, for example, from the late 1600s onwards. With the gradual removal of precious metals from the monetary system, paper money evolved into pure fiat money.
True paper money, called "jiaozi", developed from these promissory notes by the 11th century, during the Song dynasty. By 960, the Song government was short of copper for striking coins, and issued the first generally circulating notes. These notes were a promise by the ruler to redeem them later for some other object of value, usually money. The issue of credit notes was often for a limited duration, and at some discount to the promised amount later. The jiaozi did not replace coins but was used alongside them.
The central government soon observed the economic advantages of printing paper money, issuing a monopoly for the issue of these certificates of deposit to several deposit shops. By the early 12th century, the amount of notes issued in a single year amounted to an annual rate of 26 million strings of cash coins. By the 1120s, the central government started to produce its own state-issued paper money (using woodblock printing).
Even before this point, the Song government was amassing large amounts of paper tribute. It was recorded that each year before 1101, the prefecture of Xin'an (modern Shexian, Anhui) alone would send 1,500,000 sheets of paper in seven different varieties to the capital at Kaifeng. In 1101, the Emperor Huizong of Song decided to lessen the amount of paper taken in the tribute quota because it was causing detrimental effects and creating heavy burdens on the people of the region. However, the government still needed masses of paper products for the exchange certificates and the state's new issuing of paper money. For the printing of paper money alone, the Song government established several government-run factories in the cities of Huizhou, Chengdu, Hangzhou, and Anqi.
The workforce employed in these paper money factories was quite large; it was recorded in 1175 that the factory at Hangzhou alone employed more than a thousand workers a day. However, the government issues of paper money were not yet nationwide standards of currency at that point; issues of notes were limited to regional areas of the empire, and were valid for use only in a designated and temporary limit of three years.
Between 1265 and 1274, the late southern Song government introduced a gold- or silver-backed national paper currency standard, which changed the geographic restriction. The range of varying values for these notes was perhaps from one string of cash to one hundred at the most. Ever after 1107, the government printed money in no less than six ink colors and printed notes with intricate designs and sometimes even with mixture of a unique fiber in the paper to combat counterfeiting.
The founder of the Yuan dynasty, Kublai Khan, issued paper money known as Jiaochao. The original notes were restricted by area and duration, as in the Song dynasty, but in the later years, facing massive shortages of specie to fund their rule, the paper money began to be issued without restrictions on duration. The fact that the state was guaranteeing the Chinese paper money impressed Venetian merchants.
Around 1150, the Knights Templar would issue notes to pilgrims. Pilgrims would deposit valuables with a local Templar preceptory before embarking for the Holy Land and receive a document indicating the value of their deposit. They would then use that document upon arrival in the Holy Land to receive funds from the treasury of equal value.
In the 13th century, Chinese paper money of Mongol Yuan became known in Europe through the accounts of travelers, such as Marco Polo and William of Rubruck. (2025). 9780195175714, Oxford University Press. ISBN 9780195175714 Marco Polo's account of paper money during the Yuan dynasty is the subject of a chapter of his book, The Travels of Marco Polo, titled "".
In Middle Ages Italy and Flanders, because of the insecurity and impracticality of transporting large sums of cash over long distances, money traders started using . In the beginning, these were personally registered, but they soon became a written order to pay the amount to whoever had it in their possession. These notes are seen as a predecessor to banknotes by some but are mainly thought of as proto bills of exchange and cheques.De Geschiedenis van het Geld (the History of Money), 1992, Teleac, p. 96 The term "bank note" itself comes from the notes of the bank ("nota di banco") and dates from the 14th century; it originally recognized the right of the holder of the note to collect the precious metal (usually gold or silver) deposited with a banker (via a currency account). In the 14th century, it was used in every part of Europe and in Italian city-state merchants colonies outside of Europe. For international payments, the more efficient and sophisticated bill of exchange ("lettera di cambio"), that is, a promissory note based on a virtual currency account (usually a coin no longer physically existing), was used more often. All physical currencies were physically related to this virtual currency; this instrument also served as credit.
The first short-lived attempt at issuing banknotes by a central bank was in 1661 by Stockholms Banco, a predecessor of Sweden's central bank, Sveriges Riksbank. These replaced the copper-plates being used instead as a means of payment. The peculiar circumstances of the Swedish coin supply were what led to this banknote issue. Cheap foreign imports of copper had forced the Crown to steadily increase the size of the copper coinage to maintain its value relative to silver. The heavy weight of the new coins encouraged merchants to deposit it in exchange for receipts. These became banknotes when the manager of the bank decoupled the rate of note issue from the bank currency reserves. Three years later, the bank went bankrupt after rapidly increasing the artificial money supply through the large-scale printing of paper money. A new bank, the Riksens Ständers Bank, was established in 1668, but did not issue banknotes until the 19th century.
A temporary experiment of banknote issue was carried out by Sir William Phips as the governor of the Province of Massachusetts Bay starting on December 20, 1690,Andrew McFarland Davis, Currency and Banking in the Province of the Massachusetts-Bay, Volume 1, Issue 4 (American Economic Association, 1900) p.10 to help fund the war effort against France. The other Thirteen Colonies followed in Massachusetts' wake and began issuing bills of credit, an early form of paper currency distinct from banknotes, to fund military expenditures and for use as a common medium of exchange.Newman, Eric P. (1990). 087341120X, Krause Publications. 087341120X By the 1760s, these bills of credit were used in the majority of transactions in the Thirteen Colonies.
The first bank to initiate the permanent issue of banknotes was the Bank of England. Established in 1694 to raise money for the funding of the war against France, the bank began issuing notes in 1695 with the promise to pay the bearer the value of the note on demand. They were initially handwritten to a precise amount and issued on deposit or as a loan. There was a gradual move toward the issuance of fixed denomination notes, and by 1745, standardized printed notes ranging from £20 to £1,000 were being printed. Fully printed notes that did not require the name of the payee and the cashier's signature first appeared in 1855.
The Bank of Scotland was established in 1695 to support Scottish businesses, and in 1696 became the first European bank to issue banknotes in fixed values. It continues to issue banknotes and is the longest continuous banknote issue in the world.
The Scottish economist John Law helped establish banknotes as a formal currency in France, after the wars waged by Louis XIV left the country with a shortage of precious metals for coinage.
In the United States, there were early attempts at establishing a central bank in 1791 and 1816, but it was only in 1862 that the federal government of the United States, began to print banknotes.
Until the mid-19th century, commercial banks were able to issue their own banknotes, and notes issued by provincial companies were the common form of currency throughout England, outside London. The Bank Charter Act 1844, which established the modern central bank, restricted authorisation to issue new banknotes to the Bank of England, which would henceforth have sole control of the money supply in 1921. At the same time, the Bank of England was restricted to issue new banknotes only if they were 100% backed by gold or up to £14 million in government debt. The Act gave the Bank of England an effective monopoly over the note issue from 1928.
Paper money has a natural advantage over coins in that it is lighter to carry; but it is also less durable than coins. Banknotes issued by had counterparty risk, meaning that the bank may not be able to make payment when the note was presented. Notes issued by central banks had a theoretical risk when they were backed by gold and silver. Both notes and coins are subject to inflation. The durability of coins means that even if metal coins melt in a fire or are submerged under the sea for hundreds of years, they still have some value when they are recovered. Gold coins salvaged from shipwrecks retain almost all of their original appearance, but silver coins slowly corrode.Famous shipwrecks from which valuable precious metals and coins were recovered in recent years include the Atocha and the SS Central America. Shipwreck coins are highly collectible, and dealers sometimes post photos on the internet.
Other costs of using bearer money include:
The different advantages and disadvantages of commodity money and paper money imply that there may be an ongoing role for both forms of bearer money, each being used where its advantages outweigh its disadvantages.
There are many different organizations and societies around the world for the hobby, including the International Bank Note Society (IBNS), which currently asserts to have around 2,000 members in 90 countries.
Manufacturers of these items must take into consideration when creating these products whether the product could be construed as counterfeiting. Overlapping note images and/or changing the dimensions of the reproduction to be at least 50% smaller or 50% larger than the original are some ways to avoid the risk of being considered a counterfeit. But in cases where realism is the goal, other steps may be necessary. For example, in the stack of banknotes seat mentioned earlier, the decal used to create the product would be considered counterfeit. However, once the decal has been affixed to the resin stack shell and cannot be peeled off, the final product is no longer at risk of being classified as counterfeit, even though the resulting appearance is realistic.
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