Paper currency originated in China during the rule of the Tang Dynasty (618 A.D. – 907 A.D.). It came from the need to have a way to transport large sums of money without hauling hundreds of pounds of precious metals long distances. Such convoys would attract the attention of bandits as well as be cumbersome and slow.
Original paper currency was not the government mandated bills we have today. Rather, it took the form of issues bills of credit or exchange notes, most often in the private sector, kind of like more official IOU’s. This method was used for several centuries until a more organized approach was taken.
During the rule of the Sung Dynasty in China in the 11th century, they resorted to using true paper money. These money ‘notes’ were issues by the government. They were specially manufactured to discourage forgery, much like what is done today. They bore special numbers to be able to differentiate one from another as well. In 1107, the dawn of the 12th century, color printing was introduced to stave off more sophisticated forms of forgery.
This practice continued for several hundred years in China. It did not catch on in Europe until the 17th century, even after the travels of Marco Polo and the first trades routes with the East were established. This lack of interest was because Europeans could not fathom how paper currency could be valuable in any way. But eventually it caught on and spread to the rest of the world.
One of the main reasons behind this was because of the ease of making more money to use in a short amount of time. Unlike gold and silver, both of which are finite, precious resources, paper money has no logistical limit and can be printed near indefinitely. Unfortunately, more advanced concepts of economics like inflation were either not widely distributed or had not been studied or discovered yet.
The Chinese underwent a staggering financial crisis because of their lack of knowledge. Ironically, this crisis occurred while paper money was becoming popular with the rest of the world! Essentially, the Chinese printed so much money that the value of each bill dropped astronomically. The entire empire went through one of the worst recessions in history. It was so bad, the Chinese abandoned paper money entirely! For several hundred years, they once again used minted money that relied on precious metals. Eventually, they would adopt paper currency again, and still use it today.
Paper currency is used all over the world today. There are no countries that do not use some form of paper currency. Several countries, like Norway and Sweden, are rapidly moving towards eliminating any form of physical currency, but these plans are currently still being implemented.
Another change occurring across the world is the switch to plastic bill. Paper is inherently flimsy and fragile. Oftentimes people will exchange torn money. While it has not lost its value while it is still mostly whole, if the bill breaks, it is worthless. The first change to plastic money occurred in January 1988 in Australia. The Australian Reserve Bank of Canberra released the first batch of plastic notes. They incorporated see-through sections and an image on a metallic background. One of the chief intentions behind this switch was to create a money note much more durable than their paper counterparts. The holograph image on the note served to help reduce counterfeit, as without the right tool it proves much more difficult to copy than a paper note. Dozens of countries around the world now use this paper currency, the United States being a notable absentee to this trend. The switch to plastic allows for greater security in these countries’ security due to the difficulty of creating fake duplicates. Pictured below is an example of plastic-based currency.
Over the years, many bills around the world have entered circulation and subsequently been excised. A good example of this is the two dollar bill formerly used by America. While it is still a valid form of currency, it is no longer printed. The bill features Thomas Jefferson and is a bit of a collector’s item. Many people like to collect rare forms of money; they make a hobby out of it.