History of Paper Money

Paper money, also referred to as banknotes or bills, has numerous advantages over its metal counterparts - and this very fact led to its origin in China way back in the 10th century. That isn't quite surprising considering that Ancient China has given the world quite a few important things, including paper, printing press, and the paper money itself. Basically, the journey of this form of currency has been full of ups and downs. It originated in Ancient China, then it disappeared from there, then it was introduced in Europe and the United States.

Ancient China
As in case of several other countries of the world, even China used coins made from various metals as a form of currency. Ancient Chinese coins were circular in shape, and featured a rectangular hole at their center. A string was passed through this rectangular hole and a bunch of coins was created - which made it a lot easier to carry these coins when moving around. Eventually, the Chinese merchants realized that roaming around with this heavy bunch of coins was a tedious task. In order to solve this problem, the Chinese introduced a new system wherein the merchants kept their coins with another person and took it in writing on a piece of paper. When the merchant wanted his coins back, he just had to show the piece of paper and got his rightfully owned money back from the other person. As time elapsed, the use of these promissory notes became even more popular, and eventually paved the way for development of actual paper money referred to as Jiaozi.

Jiaozi Currency
Other than the difficulty involved in carrying these coins, shortage of copper also played a crucial role in development of paper money in China. The first instance of use of Jiaozi currency dates back to 10th century in China, which was then under the Song Dynasty regime. These paper notes were widely used in Chengdu, the capital of Sichuan province of China, between 960-1279 AD. These notes had a unique banknote seal which was used so that people couldn't counterfeit this currency. Even though Song Dynasty was the first to issue paper notes, it didn't become the major medium until Yuan Dynasty came to power in China. The paper currency issued during the reign of Yuan Dynasty founder - Kublai Khan, was referred to as Chao. By the end of 14th century, the use of paper money in Ancient China had dwindled to a great extent, and it virtually disappeared from the picture for a brief period.

United States of America
Even though the Chinese invented paper money way back in the 10th century, it was introduced as a method of exchange in the United States much later, i.e. in the 17th century. The Massachusetts Bay Colony became the first of the thirteen original colonies to issue paper currency in the United States in 1690 - even before the United States of America was actually formed. The term 'Continental currency' came into existence in 1775, when the Continental government used this money to finance the American Revolutionary War. However, there was no solid backing to this currency, and therefore it was easily counterfeited and in course of time lost its value.

The First Bank and the Greenbacks
While the federal government didn't print paper currency directly, the U.S. Congress chartered the First Bank of the United States in 1789 and gave it the authority to issue this currency. Though the attempt was successful, this bank was closed down in 1811 - as the federal government failed to renew its charter. The US Congress chartered the Second Bank of the United States in 1816. Even though the federal government didn't renew its charter in 1836, this bank continued operations until 1941 under the charter issued by Commonwealth of Pennsylvania. Eventually in 1862, the federal government started printing paper money on its own. The year also marked the introduction of United States Notes, commonly known as the Greenbacks, which were last issued in 1871.

In 1910, the Bureau of Engraving and Printing of the Department of the Treasury took the entire process of currency production, including printing of paper money, in its own hands. Interestingly, the largest note ever printed by the Bureau was the $100,000 Gold Certificate, Series 1934, which was printed back in 1934-35.