Paper Money – Definitions, Characteristics, History, Security, and Features
Table of Contents
Paper Money Definitions
Paper money has several concrete forms: coins, checks or paper money. Thus, paper money is called the piece of paper representing a certain amount of money. In the current language, paper money is equivalent to a ticket. In this way, the concept of a currency refers to units of metal and paper money as bills.
Characteristics of Paper Money
The main characteristics of paper money are the following:
- The central bank of each country issues them.
- It is used parallel with metal coins and can exchange for them. A US$1 bill, for example, is equivalent to 2 50-cent coins.
- The technique of printing paper money is perfect more and more to avoid counterfeits.
- It represents fiduciary money. That is, it is based on faith. Thus, society trusts that a ticket represents a monetary value and can be exchanged.
History of Paper Money
The history of paper money has its source in China in the 7th century, being the creation of wholesalers during the Tang dynasty, between 618 AD and 907 AD.
Chinese merchants used a document covering a promise to repay, similar to today’s promissory note. This paper had value and could switch products.
The new invention of the Eastern merchants facilitates their trade. Thus, they no longer needed to carry many coins to carry out transactions.
It should note that these first banknotes were very different in appearance from those of today. The Chinese made them based on a black sheet derived from the bark of the moral.
During the 10th century, the use of paper money spread throughout the Asian giant. At that time, the shortage of copper led the Chinese emperor to regulate the use of banknotes, and only the Government was given the power to manufacture them. Previously, it was the private ones who issued them.
Around 1300, Marco Polo publish in his Book of Wonders the use of paper money, relating it to Chinese economic prosperity. But, it was only in the 17th century that the printing of banknotes began in the old continent.
Paper Money in Europe
Paper money in Europe was first issued in Sweden in 1661, serving as a deposit slip. The Bank of Stockholm, directed by Johan Palmstruch, began to issue banknotes to those who kept gold or other metal in their institution.
Later, in the eighteenth century, the issuance became widespread in Europe, always back by the gold owned by the State. For each printed ticket, the respective central bank had to have in its vaults the equivalent in ounces of gold metal. This market is different from the original Chinese paper money based only on trust.
Finally, in the 1970s, the backing of gold, known as the gold standard, disappear. Thus, the circulation of banknotes was once again ensured solely by the belief and consensus of the users.
Security Features of Paper Money
The most common security features are as follows:
Watermark: Recordings distinguishable only against the light.
Fluorescent prints: Letters or images that can view under ultraviolet light.
Colour-changing drawings: Prints vary in colour depending on the angle from which the bill view.
Latent photos: These are recordings that appear when rotate.
Different Kinds of Money
Paper money and traditional coins are material forms of money. In addition, there is credit money and fiat money. Paper money and coins are tangible. Credit money use to make defer payments, but we don’t see it, and we don’t touch it. Finally, fiduciary money is the current monetary model used globally and base on reserve money such as the dollar or the euro.
Functions of Paper Money
It is a payment method. The people who have the make a physical exchange between the cash and a good or service in demand, thus producing a deal in hand between a seller and a customer.
It is a unit of measure of value: It relates to a product or service to give it a certain monetary value.
Its accept for free circulation: Paper money is globally accepted by all the world’s people. Any seller assumes it as a transaction and puts it in motion to exchange it for other goods and services.
It is fiat money: This means that paper money has no value. They are just paper and metal that can deteriorate and lose weight. But in turn, they have the support of the countries’ governments and are the ones who give official status and consent to fiduciary currencies.
Origin of Paper Money
If we go back to prehistory, we understand that survival was a matter of searching and finding those means that nature produced (water, food, shelter, etc.) for the first humans. The difficulties in finding such resources were serious, and normally the reward obtained was not enough. Human being learns everything we know today, such as cultivation, livestock and textile manufacturing. In short, human beings learn to work by adding value to natural resources.
Not all people could produce the same resources because by settling in different geographical locations, each tribe would produce various resources. Thus, the exchange of resources would become a fact. As a curious fact, in Europe, salt uses as a payment method, hence the name salary. Thus, the set of resources used as a means of payment call commodity money since these could serve as savings. The commodity money that most uses due to its high value was gold and other precious metals. It was in China that they began to manufacture coins as we know them today.
Virtual Money and cryptocurrencies, the end of Cash?
It is a fact that different and more forms of online payment are being used than cash payments because it is much easier and faster to carry out any transaction. Even in Sweden since 2018, its very limited use as a payment method in business. Finance companies and influential economists worldwide believe there is a plan to eliminate cash.
This should add the appearance of cryptocurrencies. Bitcoin and Altcoins are not just common virtual currencies, as blockchain technology may become the operating system of a whole new economy. They are a key instrument for creating a new decentralise financial system. For this reason, the large financial entities and the central banks have serious competitors. Thus, seeing how financial institutions realize that cryptocurrencies are a before and after in the economic framework, seems to have less and less important in the economy.
Paper money or better known by the name of banknotes originated in the 7th century in China. However, in Europe, appear in the 17th century, more specifically in Sweden in 1661, and spread throughout the rest of Europe in the 17th century. XVIII.
The first uses that give were through the money changer Johan Palmstruch who dedicate himself to delivering them as a receipt for those who deposit gold or other material in the Bank of Stockholm, found by him.
Paper money arrived in Spain in 1780, having a great catch and was quickly accepted since it was a much more comfortable means than walking around with large amounts of coins.