The First Use of Paper Money

The First Use of Paper Money

Post From The International Bank Note Society

By Don Cleveland IBNS LM-136

Paper Banknotes - Circulation - Skepticism - Counterfeiters - Enhanced Security

The First Use of Paper Money

The first mention of the use of paper as money is found in historic Chinese texts. Emperor Chen Tsung (998-1022) awarded rights to issue universal bills of exchange to 16 merchants during his rein. When, however, several of these merchants failed to redeem notes on presentation, the credibility of the money was undermined and the public refused to accept it.

In 1023, the Emperor rescinded the merchants’ issue rights and established a Bureau of Exchange within the government charged with issuing circulating paper notes. These are now considered the first true government-issued banknotes.

Printing plates made of brass from this period have been found by archaeologists and have been used to print recreated examples of these early banknotes. No original-issue notes of this series are known to have survived

​In 1296, Marco Polo, describing his travels in China, made a fleeting reference to paper used as money in the Chinese Empire. Europeans found the idea so preposterous and unbelievable, the very credibility of his accounts of having traveled and lived in China were questioned.

The oldest existing original banknote found to date was a fragment discovered in a cave. This banknote was issued by the Chinese Emperor Hiao Tsung sometime between 1165 and 1174. On its face, this surviving, rather sophisticated example depicted the amount or number of coins it represented, and is clearly descended from earlier issues, none of which have survived.

The First European Banknotes

The first true banknotes from Europe were issued in Sweden in 1661. Much debate accompanied the issue, with some officials and merchants predicting paper money would herald the downfall of the country’s monetary system.

To overcome such objections, the monetary authorities issued the banknotes with no fewer than 16 certifying endorsements from prominent and trustworthy officials - all signed individually by hand! Backed by the government’s guarantee to redeem the banknotes in specie, they were an immediate success, replacing the necessity to carry large, heavy, easily stolen quantities of gold or silver.

Within months, other European governments and merchants, observing the convenience, safety, and boost to commerce Sweden’s experiment gave to its economy, issued paper money of their own. Unfortunately, not all issuers were as meticulous as Sweden when it came to backing their currency with specie.

Realizing not all the banknotes circulated would be redeemed, governments began issuing banknotes exceeding the value of the gold and silver in their treasuries. Further, whenever more money was needed, princes, banks and other issuers of money found it easy to print up another batch - which is exactly what they did

Most early printed money soon devalued, sometimes to the point of becoming worthless. (A lesson some governments today have yet to learn.)  The concept of paper money being new, most countries of the time lacked laws governing who could print money.

Counterfeiting laws making it illegal to copy existing coins were updated to cover paper money, but few countries had prohibitions against anyone issuing their own currency.

Soon states, principalities, cities, banks, guilds, institutions, and even private individuals - just about anyone with access to a printing press – started churning out banknotes. Indeed, the only hindrance to such issues was the public’s readiness to accept any given banknote.

Under such circumstances, the face value of many banknotes became almost meaningless. A banknote’s value was determined by the reputation of the issuer and the amount of specie backing it. Some notes were not accepted at all, rendering them worthless.

Others were accepted only at a discount from face value - which at times could be ten percent or lower. A rare few banknotes actually circulated at more than face value, especially if the issuers specified they would honour the banknote’s exchange for specific amounts of gold or silver - metals which themselves often fluctuated in value.

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