Money and the History of Money Banknotes Coins Rupee History of Banking

Money and the History of Money
Banknotes Coins Rupee History of Banking

Contents
1 History of money 1
1.1 Non-monetary exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.1 Barter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.2 Gift economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 The emergence of money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2.1 Early administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2.2 Early usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Commodity money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3.1 Standardized coinage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Trade bills of exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Tallies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 Goldsmith bankers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Demand deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.8 Banknotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.9 See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.10 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.11 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.12 Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.13 External links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2 Banknote 11
2.1 History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1.1 Early Chinese paper money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1.2 European explorers and merchants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1.3 Modern banknote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.4 Permanent issue of banknotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.5 Central bank issuance of legal tender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.2 Issue of banknotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.3 Advantages and disadvantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.4 Materials used for banknotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.4.1 Paper banknotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.4.2 Polymer banknotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.4.3 Other materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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2.4.4 Vertical orientation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.5 Vending machines and banknotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.6 Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.7 Intelligent Banknote Neutralisation System (IBNS) . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.8 Dynamic Intelligent Currency Encryption (DICE) . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.9 Conﬁscation and asset forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.10 Displacement by electronic currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.11 Paper money collecting as a hobby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.11.1 Trades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.11.2 Novelty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.12 See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.13 Notes and references . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.14 Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.15 External links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3 Central bank 24
3.1 History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1.1 Bank of England . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1.2 Spread around the world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1.3 Naming of central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.2 Activities and responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.3 Monetary policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.3.1 Currency issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.3.2 Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.4 Policy instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.4.1 Interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4.2 Open market operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4.3 Capital requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.4.4 Reserve requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.4.5 Exchange requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.4.6 Margin requirements and other tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.4.7 Limits on policy eﬀects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.5 Banking supervision and other activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.6 Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.7 See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.8 Notes and references . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.9 Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.10 External links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4 History of banking 34
4.1 Ancient precedents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.1.1 Monetary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

CONTENTS iii
4.1.2 Record-keeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.1.3 Structural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.2 Earliest forms of banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.2.1 Mesopotamia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.2.2 Greece . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.2.3 Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.2.4 Roman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.2.5 Asia Minor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.2.6 Oriental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.3 Religious restrictions on interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.3.1 Judaism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.3.2 Christianity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.3.3 Islam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.4 Medieval Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.4.1 Emergence of merchant banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.4.2 Crusades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.4.3 Discounting of interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.4.4 Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.4.5 Italian bankers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.5 Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.5.1 Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.5.2 Spain and the Ottoman Empire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.5.3 Court Jew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.5.4 Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.5.5 Holland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.5.6 England . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.6 17th - 19th centuries - The emergence of modern banking . . . . . . . . . . . . . . . . . . . . . . 43
4.6.1 Goldsmiths of London . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.6.2 The modern bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.6.3 Development of central banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.6.4 Rothschilds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.6.5 Napoleonic wars and Paris . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.6.6 Building societies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.6.7 Mutual savings bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.6.8 Postal savings system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.7 20th century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.7.1 Great Depression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.7.2 World Bank and the development of payment technology . . . . . . . . . . . . . . . . . . 48
4.7.3 Deregulation and globalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.8 21st century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.8.1 Financial crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

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4.9 Major events in banking history . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.10 See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.11 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.11.1 Footnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.11.2 Citations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.12 Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
4.13 External Link . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5 History of coins 59
5.1 Early Coins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.2 Minting technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.3 See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.4 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.5 External links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6 History of the rupee 61
6.1 Early uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.2 Coinage since the British period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.3 Since 1947 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.3.1 Decimalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.3.2 1966 Economic crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.3.3 1991 Economic crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.3.4 Revaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.3.5 2013 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.4 Banknotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.4.1 Early paper issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.4.2 British India issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.4.3 Reserve Bank issues during British India . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.4.4 Republic of India issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.5 Valuation history . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.6 Other issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.7 See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.8 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.9 External links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7 History of the United States dollar 68
7.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7.2 Early years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
7.3 Gold standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
7.3.1 The Gold Reserve Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
7.3.2 U.S. dollar value vs. gold value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.4 Silver standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

CONTENTS v
7.5 Use as international reserve currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
7.5.1 History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
7.5.2 Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
7.6 United States Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
7.7 Fiat standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
7.8 Color and design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
7.9 See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
7.10 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
7.11 External links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
8 Manilla (money) 77
8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
8.2 Types of manilla . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
8.3 The various uses of Manillas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
8.4 History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
8.4.1 Origins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
8.4.2 European and other ethnographic parallels . . . . . . . . . . . . . . . . . . . . . . . . . . 79
8.4.3 Slave trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
8.4.4 Manufacture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
8.4.5 Demise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
8.4.6 Resurgence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
8.5 See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
8.6 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
8.7 External links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
9 Trade bead 82
9.1 See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
9.2 External links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10 Axe-monies 83
10.1 Metallurgical traditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.2 Ecuador-Mexico trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.3 See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.4 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.5 Text and image sources, contributors, and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.5.1 Text . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.5.2 Images . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
10.5.3 Content license . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Chapter 1
History of money
The history of money concerns the development of
means of carrying out transactions involving a physical
medium of exchange. Money is any clearly identifiable
object of value that is generally accepted as payment for
goods and services and repayment of debts within a mar-
ket or which is legal tender within a country.
Many things have been used as medium of exchange in
markets including, for example, livestock and sacks of
cereal grain (from which the Shekel is derived) – things
directly useful in themselves, but also sometimes merely
attractive items such as cowry shells or beads were ex-
changed for more useful commodities. Precious metals,
from which early coins were made, fall into this second
category.
Numismatics is the study of money.
1.1 Non-monetary exchange
1.1.1 Barter
Main article: Barter
In Politics Book 1:9[1]
(c.350 B.C.) the Greek philoso-
pher Aristotle contemplated on the nature of money. He
considered that every object has two uses, the first be-
ing the original purpose for which the object was de-
signed, and the second possibility is to conceive of the
object as an item to sell or barter.[2]
The assignment of
monetary value to an otherwise insignificant object such
as a coin or promissory note arises as people and their
trading associate evolve a psychological capacity to place
trust in each other and in external authority within barter
exchange.[3][4]
With barter, an individual possessing any surplus of
value, such as a measure of grain or a quantity of livestock
could directly exchange that for something perceived to
have similar or greater value or utility, such as a clay pot
or a tool. The capacity to carry out barter transactions is
limited in that it depends on a coincidence of wants. The
seller of food grain has to find the buyer who wants to buy
grain and who also could offer in return something the
seller wants to buy. There is no agreed standard measure
into which both seller and buyer could exchange com-
modities according to their relative value of all the var-
ious goods and services offered by other potential barter
partners.
Criticisms
David Kinley considers the theory of Aristotle to be
flawed because the philosopher probably lacked suffi-
cient understanding of the ways and practices of primitive
communities, and so may have formed his opinion from
personal experience and conjecture.
In his book Debt: The First 5000 Years, anthropologist
David Graeber argues against the suggestion that money
was invented to replace barter. The problem with this
version of history, he suggests, is the lack of any support-
ing evidence. His research indicates that “gift economies”
were common, at least at the beginnings of the first agrar-
ian societies, when humans used elaborate credit systems.
Graeber proposes that money as a unit of account was in-
vented the moment when the unquantifiable obligation “I
owe you one” transformed into the quantifiable notion of
“I owe you one unit of something”. In this view, money
emerged first as credit and only later acquired the func-
tions of a medium of exchange and a store of value.[5][6]
1.1.2 Gift economy
In a gift economy, valuable goods and services are regu-
larly given without any explicit agreement for immediate
or future rewards (i.e. there is no formal quid pro quo).[7]
Ideally, simultaneous or recurring giving serves to circu-
late and redistribute valuables within the community.
There are various social theories concerning gift
economies. Some consider the gifts to be a form of
reciprocal altruism. Another interpretation is that im-
plicit "I owe you" debt[8]
and social status are awarded in
return for the “gifts”.[9]
Consider for example, the sharing
of food in some hunter-gatherer societies, where food-
sharing is a safeguard against the failure of any individ-
ual’s daily foraging. This custom may reflect altruism, it
may be a form of informal insurance, or may bring with
it social status or other benefits.
1

2 CHAPTER 1. HISTORY OF MONEY
1.2 The emergence of money
Anatolian obsidian as a raw material for stone-
age tools was distributed as early as 12,000 B.C.,
with organized trade occurring in the 9th millen-
nium.(Cauvin;Chataigner 1998)[10]
In Sardinia, one of
the four main sites for sourcing the material deposits
of obsidian within the Mediterranean, trade in this was
replaced in the 3rd millennium by trade in copper and
silver.[11][12][13][14]
As early as 9000 BC both grain and cattle were used
as money or as barter (Davies) (the first grain remains
found, considered to be evidence of pre-agricultural prac-
tice date to 17,000 BC).[15][16][17]
In the earliest instances of trade with money, the things
with the greatest utility and reliability in terms of re-use
and re-trading of these things (their marketability), de-
termined the nature of the object or thing chosen to ex-
change. So as in agricultural societies, things needed for
efficient and comfortable employment of energies for the
production of cereals and the like were the most easy to
transfer to monetary significance for direct exchange. As
more of the basic conditions of the human existence were
met to the satisfaction of human needs,[18]
so the division
of labour increased to create new activities for the use of
time to solve more advanced concerns. As people’s needs
became more refined, so indirect exchange became more
likely as the physical separation of skilled labourers (sup-
pliers) from their prospective clients (demand) required
the use of a medium common to all communities, to fa-
cilitate a wider market.[19][20]
Aristotle’s opinion of the creation of money[4]
as a new
thing in society is:
When the inhabitants of one country be-
came more dependent on those of another, and
they imported what they needed, and exported
what they had too much of, money necessarily
came into use.[21]
The worship of Moneta is recorded by Livy with the tem-
ple built in the time of Rome 413 (123); a temple conse-
crated to the same god was built in the earlier part of the
fourth century (perhaps the same temple).[22][23][24]
The
temple contained the mint of Rome for a period of four
centuries.[25][26]
1.2.1 Early administration
The Code of Hammurabi, the best preserved ancient law
code, was created ca. 1760 BC (middle chronology) in
ancient Babylon. It was enacted by the sixth Babylonian
king, Hammurabi. Earlier collections of laws include the
code of Ur-Nammu, king of Ur (ca. 2050 BC), the Code
of Eshnunna (ca. 1930 BC) and the code of Lipit-Ishtar
of Isin (ca. 1870 BC).[27]
These law codes formalized the
role of money in civil society. They set amounts of inter-
est on debt... fines for 'wrongdoing'... and compensation
in money for various infractions of formalized law.
The Mesopotamian civilization developed a large scale
economy based on commodity money. The Babylonians
and their neighboring city states later developed the earli-
est system of economics as we think of it today, in terms
of rules on debt,[8]
legal contracts and law codes relating
to business practices and private property. Money was
not only an emergence, it was a necessity.[28][29]
1.2.2 Early usage
The earliest jagah of storage were thought to be money-
boxes containments (θησαυροί[30]
) made similar to the
construction of a bee-hive,[31][32]
as of the Mycenae
tombs of 1550–1500 BC.[33][34][35]
An early of money were cattle, which were used as such
from between 9000 to 6000 BC onwards (Davies 1996 &
1999).[36][37]
Both the animal and the manure produced
were valuable; animals are recorded as being used as pay-
ment as in Roman law where fines were paid in oxen
and sheep (Rollin 1836)[38][39][40]
and within the Iliad and
Odyssey, attesting to a value c. 850–800 BC (Evans &
Schmalensee 2005).[41][42]
It has long been assumed that metals, where available,
were favored for use as proto-money over such commodi-
ties as cattle, cowry shells, or salt, because metals are at
once durable, portable, and easily divisible.[43]
The use of
gold as proto-money has been traced back to the fourth
millennium BC when the Egyptians used gold bars of a
set weight as a medium of exchange, as had been done
earlier in Mesopotamia with silver bars.
The first mention of the use of money within the Bible
is within the Book of Genesis[44]
in reference to crite-
ria of the circumcision of a bought slave. Later, the
Cave of Machpelah is purchased (with silver[45][46]
) by
Abraham,[47]
during a period dated as being the begin-
ning of the twentieth century BC,[48]
some-time recent
to 1900 BC[49]
(after 1985).[50]
The currency was also
in use amongst the Philistine people of the same time-
period.[51]
The shekel was an ancient unit[52]
used in Mesopotamia
around 3000 BC to define both a specific weight of barley
and equivalent amounts of materials such as silver, bronze
and copper. The use of a single unit to define both mass
and currency was a similar concept to the British pound,
which was originally defined as a one-pound mass of sil-
ver.
A description of how trade proceeded includes for sales
the dividing (clipping) of an amount from a weight of
something corresponding to the perceived value of the
purchase. Of this the ancient Greek term was κέρδος.
From this one might understand the development of how
coinage was imagined from the small metallic clippings

1.3. COMMODITY MONEY 3
(of silver[53][54][55]
) resulting from trade exchanges.[56]
The word used in Thucydides writings History for money
is χρήματα (“chremata”), translated in some contexts as
“goods” or “property”, although with a wider ranging pos-
sible applicable usage, having a definite meaning “valu-
able things”.[57][58][59][60]
The first gold coins of the Grecian age were struck in
Lydia at a time approximated to the year 700 BC[61]
The
talent[52][62]
in use during the periods of Grecian history
both before and during the time of the life of Homer,
weighed between 8.42 and 8.75 grammes.[63]
(p. 3 – Selt-
man)
1.3 Commodity money
1742 drawing of shells of the money cowry, Cypraea moneta
Main article: Commodity money
Bartering has several problems, most notably that it re-
quires a "coincidence of wants". For example, if a wheat
farmer needs what a fruit farmer produces, a direct swap
is impossible as seasonal fruit would spoil before the grain
harvest. A solution is to trade fruit for wheat indirectly
through a third, “intermediate”, commodity: the fruit is
exchanged for the intermediate commodity when the fruit
ripens. If this intermediate commodity doesn't perish and
is reliably in demand throughout the year (e.g. copper,
gold, or wine) then it can be exchanged for wheat after
the harvest. The function of the intermediate commodity
as a store-of-value can be standardized into a widespread
commodity money, reducing the coincidence of wants
problem. By overcoming the limitations of simple barter,
a commodity money makes the market in all other com-
modities more liquid.
Many cultures around the world eventually developed the
use of commodity money. Ancient China, Africa, and
India used cowry shells. Trade in Japan’s feudal system
was based on the koku – a unit of rice. The shekel was
an ancient unit of weight and currency. The first usage
of the term came from Mesopotamia circa 3000 BC and
referred to a specific weight of barley, which related other
values in a metric such as silver, bronze, copper etc. A
barley/shekel was originally both a unit of currency and a
unit of weight.[64]
Wherever trade is common, barter systems usually lead
quite rapidly to several key goods being imbued with
monetary properties. In the early British colony of New
South Wales, rum emerged quite soon after settlement as
the most monetary of goods. When a nation is without a
currency it commonly adopts a foreign currency. In pris-
ons where conventional money is prohibited, it is quite
common for cigarettes to take on a monetary quality.
Contrary to popular belief, precious metals have rarely
been used outside of large societies. Gold, in particular,
is sufficiently scarce that it has only been used as a cur-
rency for a few relatively brief periods in history.
1.3.1 Standardized coinage
Greek drachm of Aegina. Obverse: Land turtle / Reverse:
ΑΙΓ(INA) and dolphin. The oldest turtle coin dates 700 BC
A 640 BC one-third stater coin from Lydia, shown larger.
Main article: Coin
From approximately 1000 BC money in the shape of
small knives and spades made of bronze were in use in
China during the Zhou dynasty, with cast bronze replicas
of cowrie shells in use before this. The first manufac-
tured coins seems to have taken place separately in India,
China, and in cities around the Aegean sea between 700
and 500 BC.[65]
While these Aegean coins were stamped
(heated and hammered with insignia), the Indian coins
(from the Ganges river valley) were punched metal disks,
and Chinese coins (first developed in the Great Plain)
were cast bronze with holes in the center to be strung
together. The different forms and metallurgical process
implies a separate development.[66]
The first ruler in the Mediterranean known to have offi-
cially set standards of weight and money was Pheidon.[67]
Minting occurred in the latter parts of the 7th century
amongst the cities of Grecian Asia Minor, spreading to
Aegean parts of the Greek islands and the south of Italy
by 500 BC.[26]
The first stamped money (having the mark

of some authority in the form of a picture or words) can
be seen in the Bibliothèque Nationale of Paris. It is an
electrum stater of a turtle coin, coined at Aegina island.
This coin[68]
dates about 700 BC.[69]
Other coins made of Electrum (a naturally occurring al-
loy of silver and gold) were manufactured on a larger
scale about 650 BC in Lydia (on the coast of what is now
Turkey).[70]
Similar coinage was adopted and manufac-
tured to their own standards in nearby cities of Ionia, in-
cluding Mytilene and Phokaia (using coins of Electrum)
and Aegina (using silver) during the 6th century BC. and
soon became adopted in mainland Greece itself, and the
Persian Empire (after it incorporated Lydia in 547 BC).
The use and export of silver coinage, along with soldiers
paid in coins, contributed to the Athenian Empire's 5th
century BC, dominance of the region. The silver used
was mined in southern Attica at Laurium and Thorikos
by a huge workforce of slave labour. A major silver vein
discovery at Laurium in 483 BC led to the huge expansion
of the Athenian military fleet.
It was the discovery of the touchstone which led the way
for metal-based commodity money and coinage. Any soft
metal can be tested for purity on a touchstone, allowing
one to quickly calculate the total content of a particular
metal in a lump. Gold is a soft metal, which is also hard
to come by, dense, and storable. As a result, monetary
gold spread very quickly from Asia Minor, where it first
gained wide usage, to the entire world.
Using such a system still required several steps and math-
ematical calculation. The touchstone allows one to esti-
mate the amount of gold in an alloy, which is then multi-
plied by the weight to find the amount of gold alone in a
lump. To make this process easier, the concept of stan-
dard coinage was introduced. Coins were pre-weighed
and pre-alloyed, so as long as the manufacturer was aware
of the origin of the coin, no use of the touchstone was
required. Coins were typically minted by governments
in a carefully protected process, and then stamped with
an emblem that guaranteed the weight and value of the
metal. It was, however, extremely common for govern-
ments to assert that the value of such money lay in its
emblem and thus to subsequently reduce the value of the
currency by lowering the content of valuable metal.
Gold and silver were used as the most common form
of money throughout history. In many languages, such
as Spanish, French, and Italian, the word for silver is
still directly related to the word for money. Although
gold and silver were commonly used to mint coins, other
metals were used. For instance, Ancient Sparta minted
coins from iron to discourage its citizens from engaging
in foreign trade.[71]
In the early seventeenth century Swe-
den lacked more precious metal and so produced "plate
money", which were large slabs of copper approximately
50 cm or more in length and width, appropriately stamped
with indications of their value.
Gold coinage began to be minted again in Europe in the
thirteenth century. Frederick the II is credited with hav-
ing re-introduced the metal to currency during the time
of the Crusades. During the fourteenth century Europe
had en masse converted from use of silver in currency to
minting of gold.[72][73]
Vienna transferred from minting
silver to instead gold during 1328.[72]
Metal based coins had the advantage of carrying their
value within the coins themselves – on the other hand,
they induced manipulations: the clipping of coins in the
attempt to get and recycle the precious metal. A greater
problem was the simultaneous co-existence of gold, silver
and copper coins in Europe. English and Spanish traders
valued gold coins more than silver coins, as many of their
neighbors did, with the effect that the English gold-based
guinea coin began to rise against the English silver based
crown in the 1670s and 1680s. Consequently, silver was
ultimately pulled out of England for dubious amounts of
gold coming into the country at a rate no other European
nation would share. The effect was worsened with Asian
traders not sharing the European appreciation of gold al-
together — gold left Asia and silver left Europe in quanti-
ties European observers like Isaac Newton, Master of the
Royal Mint observed with unease.[74]
Stability came into the system with national Banks guar-
anteeing to change money into gold at a promised rate;
it did, however, not come easily. The Bank of England
risked a national financial catastrophe in the 1730s when
customers demanded their money be changed into gold
in a moment of crisis. Eventually London’s merchants
saved the bank and the nation with financial guarantees.
Another step in the evolution of money was the change
from a coin being a unit of weight to being a unit of
value. A distinction could be made between its commod-
ity value and its specie value. The difference is these val-
ues is seigniorage.[75]
1.4 Trade bills of exchange
Bills of exchange became prevalent with the expansion
of European trade toward the end of the Middle Ages. A
flourishing Italian wholesale trade in cloth, woolen cloth-
ing, wine, tin and other commodities was heavily depen-
dent on credit for its rapid expansion. Goods were sup-
plied to a buyer against a bill of exchange, which consti-
tuted the buyer’s promise to make payment at some spec-
ified future date. Provided that the buyer was reputable
or the bill was endorsed by a credible guarantor, the seller
could then present the bill to a merchant banker and re-
deem it in money at a discounted value before it actually
became due. The main purpose of these bills nevertheless
was, that traveling with cash was particularly dangerous
at the time. A deposit could be made with a banker in
one town, in turn a bill of exchange was handed out, that
could be redeemed in another town.
These bills could also be used as a form of payment by

1.6. GOLDSMITH BANKERS 5
the seller to make additional purchases from his own sup-
pliers. Thus, the bills – an early form of credit – became
both a medium of exchange and a medium for storage of
value. Like the loans made by the Egyptian grain banks,
this trade credit became a significant source for the cre-
ation of new money. In England, bills of exchange be-
came an important form of credit and money during last
quarter of the 18th century and the first quarter of the
19th century before banknotes, checks and cash credit
lines were widely available.[76]
1.5 Tallies
The acceptance of symbolic forms of money opened up
vast new realms for human creativity. A symbol could be
used to represent something of value that was available in
physical storage somewhere else in space, such as grain in
the warehouse. It could also be used to represent some-
thing of value that would be available later in time, such
as a promissory note or bill of exchange, a document or-
dering someone to pay a certain sum of money to another
on a specific date or when certain conditions have been
fulfilled.
In the 12th century, the English monarchy introduced
an early version of the bill of exchange in the form of
a notched piece of wood known as a tally stick. Tallies
originally came into use at a time when paper was rare and
costly, but their use persisted until the early 19th Century,
even after paper forms of money had become prevalent.
The notches were used to denote various amounts of taxes
payable to the crown. Initially tallies were simply used as
a form of receipt to the tax payer at the time of rendering
his dues. As the revenue department became more ef-
ficient, they began issuing tallies to denote a promise of
the tax assessee to make future tax payments at specified
times during the year. Each tally consisted of a matching
pair – one stick was given to the assessee at the time of
assessment representing the amount of taxes to be paid
later and the other held by the Treasury representing the
amount of taxes be collected at a future date.
The Treasury discovered that these tallies could also be
used to create money. When the crown had exhausted
its current resources, it could use the tally receipts repre-
senting future tax payments due to the crown as a form
of payment to its own creditors, who in turn could ei-
ther collect the tax revenue directly from those assessed
or use the same tally to pay their own taxes to the gov-
ernment. The tallies could also be sold to other parties in
exchange for gold or silver coin at a discount reflecting the
length of time remaining until the taxes was due for pay-
ment. Thus, the tallies became an accepted medium of
exchange for some types of transactions and an accepted
medium for store of value. Like the girobanks before it,
the Treasury soon realized that it could also issue tallies
that were not backed by any specific assessment of taxes.
By doing so, the Treasury created new money that was
backed by public trust and confidence in the monarchy
rather than by specific revenue receipts.[77]
1.6 Goldsmith bankers
Goldsmiths in England had been craftsmen, bullion mer-
chants, money changers and money lenders since the 16th
century. But they were not the first to act as financial
intermediates; in the early 17th century, the scriveners
were the first to keep deposits for the express purpose of
relending them.[78]
Merchants and traders had amassed
huge hoards of gold and entrusted their wealth to the
Royal Mint for storage. In 1640 King Charles I seized the
private gold stored in the mint as a forced loan (which was
to be paid back over time). Thereafter merchants pre-
ferred to store their gold with the goldsmiths of London,
who possessed private vaults, and charged a fee for that
service. In exchange for each deposit of precious metal,
the goldsmiths issued receipts certifying the quantity and
purity of the metal they held as a bailee (i.e. in trust).
These receipts could not be assigned (only the original
depositor could collect the stored goods). Gradually the
goldsmiths took over the function of the scriveners of re-
lending on behalf of a depositor and also developed mod-
ern banking practices; promissory notes were issued for
money deposited which by custom and/or law was a loan
to the goldsmith,[79]
i.e. the depositor expressly allowed
the goldsmith to use the money for any purpose including
advances to his customers. The goldsmith charged no fee,
or even paid interest on these deposits. Since the promis-
sory notes were payable on demand, and the advances
(loans) to the goldsmith’s customers were repayable over
a longer time period, this was an early form of fractional
reserve banking. The promissory notes developed into
an assignable instrument, which could circulate as a safe
and convenient form of money backed by the goldsmith’s
promise to pay.[80]
Hence goldsmiths could advance loans
in the form of gold money, or in the form of promis-
sory notes, or in the form of checking accounts.[81]
Gold
deposits were relatively stable, often remaining with the
goldsmith for years on end, so there was little risk of de-
fault so long as public trust in the goldsmith’s integrity and
financial soundness was maintained. Thus, the goldsmiths
of London became the forerunners of British banking and
prominent creators of new money based on credit.
1.7 Demand deposits
The primary business of the early merchant banks was
promotion of trade. The new class of commercial banks
made accepting deposits and issuing loans their principal
activity. They lend the money they received on deposit.
They created additional money in the form of new bank
notes. The money they created was partially backed by
gold, silver or other assets and partially backed only by

public trust in the institutions that created it.
Demand deposits are funds that are deposited in bank ac-
counts and are available for withdrawal at the discretion
of the depositor. The withdrawal of funds from the ac-
count does not require contacting or making any type of
prior arrangements with the bank or credit union. As long
as the account balance is sufficient to cover the amount
of the withdrawal, and the withdrawal takes place in ac-
cordance with procedures set in place by the financial in-
stitution, the funds may be withdrawn on demand
1.8 Banknotes
Main article: Banknote
Paper money was introduced in Song Dynasty China dur-
100 USD Banknote
ing the 11th century.[82]
The development of the ban-
knote began in the seventh century, with local issues of
paper currency. Its roots were in merchant receipts of de-
posit during the Tang Dynasty (618–907), as merchants
and wholesalers desired to avoid the heavy bulk of copper
coinage in large commercial transactions.[83][84][85]
The
issue of credit notes is often for a limited duration, and at
some discount to the promised amount later. The jiaozi
nevertheless did not replace coins during the Song Dy-
nasty; paper money was used alongside the coins. The
central government soon observed the economic advan-
tages of printing paper money, issuing a monopoly right
of several of the deposit shops to the issuance of these
certificates of deposit.[86]
By the early 12th century, the
amount of banknotes issued in a single year amounted to
an annual rate of 26 million strings of cash coins.[87]
In the 13th century, paper money became known in Eu-
rope through the accounts of travelers, such as Marco
Polo and William of Rubruck.[88]
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, ti-
tled "How the Great Kaan Causeth the Bark of Trees,
Made into Something Like Paper, to Pass for Money All
Over his Country.”[89]
In medieval Italy and Flanders, be-
cause of the insecurity and impracticality of transporting
large sums of money over long distances, money traders
started using promissory notes. In the beginning these
were personally registered, but they soon became a writ-
ten order to pay the amount to whoever had it in their
possession.[90]
These notes can be seen as a predecessor to
regular banknotes.[91]
The first European banknotes were
issued by Stockholms Banco, a predecessor of the Bank
of Sweden, in 1661.[92]
These replaced the copper-plates
being used instead as a means of payment,[93]
although
in 1664 the bank ran out of coins to redeem notes and
ceased operating in the same year.
Inspired by the success of the London goldsmiths, some
of which became the forerunners of great English banks,
banks began issuing paper notes quite properly termed
‘banknotes’ which circulated in the same way that gov-
ernment issued currency circulates today. In England this
practice continued up to 1694. Scottish banks continued
issuing notes until 1850. In USA, this practice contin-
ued through the 19th Century, where at one time there
were more than 5000 different types of bank notes is-
sued by various commercial banks in America. Only the
notes issued by the largest, most creditworthy banks were
widely accepted. The script of smaller, lesser known in-
stitutions circulated locally. Farther from home it was
only accepted at a discounted rate, if it was accepted at
all. The proliferation of types of money went hand in
hand with a multiplication in the number of financial in-
stitutions.
These banknotes were a form of representative money
which could be converted into gold or silver by applica-
tion at the bank. Since banks issued notes far in excess
of the gold and silver they kept on deposit, sudden loss
of public confidence in a bank could precipitate mass re-
demption of banknotes and result in bankruptcy.
The use of bank notes issued by private commercial
banks as legal tender has gradually been replaced by the
issuance of bank notes authorized and controlled by na-
tional governments. The Bank of England was granted
sole rights to issue banknotes in England after 1694. In
the USA, the Federal Reserve Bank was granted simi-
lar rights after its establishment in 1913. Until recently,
these government-authorized currencies were forms of
representative money, since they were partially backed by
gold or silver and were theoretically convertible into gold
or silver.
1.9 See also
• Banknote
• Central bank
• History of banking
• History of coins

1.10. REFERENCES 7
• History of the rupee
• History of the United States dollar
• Manillas
• Trade beads
• Axe-monies
1.10 References
[1] S Meikle Aristotle on Money Phronesis Vol. 39, No. 1
(1994), pp. 26–44 Retrieved 2012-06-05
[2] Aristotle Politics Translated by Benjamin Jowett MIT
University
[3] N K Lewis (2001). Gold: The Once and Future Money.
John Wiley & Sons, 4 May 2007. ISBN 0470047666.
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[4] D Kinley (2001). Money: A Study of the Theory of
the Medium of Exchange. Simon Publications LLC, 1
September 2003. ISBN 193251211X. Retrieved 2012-
06-04.
[5] Graeber, David (12 July 2011). Debt: The First 5,000
Years. ISBN 1-933633-86-7.
[6] Graeber, David (26 August 2011). “What is Debt? – An
Interview with Economic Anthropologist David Graeber”.
[7] Cheal, David J (1988). “1”. The Gift Economy. New
York: Routledge. pp. 1–19. ISBN 0-415-00641-4. Re-
trieved 2009-06-18.
[8] “What is Debt? – An Interview with Economic Anthro-
pologist David Graeber”. Naked Capitalism.
[9] Gifford Pinchot – The Gift Economy. Context.org (2000-
06-29). Retrieved on 2011-02-10.
[10] Volume 3 of Proceedings of the 6th International
Congress of the Archaeology of the Ancient Near East:
5–10 May 2009 6 ICAANE Licia Romano Otto Harras-
sowitz Verlag, 2010 ISBN 3447062177 Retrieved 2012-
06-09
[11] N H Demand The Mediterranean Context of Early Greek
History John Wiley & Sons 2012 – Retrieved 2012-06-09
[12] secondary- + + + + Retrieved 2012-06-09
[13] John Bintliff 2012 The Complete Archaeology of Greece:
From Hunter-Gatherers to the 20th Century A.D. John
Wiley & Sons, 19 mars 2012 John Wiley & Sons, 19 mars
2012 ISBN 1118255194 Retrieved 2012-06-09
[14] (secondary) – S King & F Darabont-StevenKing.com The
Official website → Retrieved 2012-06-09
[15] G A Slafer – Barley Science: Recent Advances from
Molecular Biology to Agronomy of Yield and Quality p.1
Routledge, 12 March 2002 ISBN 1560229101 Retrieved
2012-06-17
[16] G Davies, J H Bank – A history of money: from ancient
times to the present day University of Wales Press, 2002
– Retrieved 2012-05-17
[17] J Huerta de Soto – 1998 (translated by M.A.Stroup 2012).
Money, Bank Credit, and Economic Cycles. Ludwig von
Mises Institute. ISBN 1610161890. Retrieved 2012-06-
15.
[18] Abraham Maslow : Maslow’s Hierarchy of Needs in
Richard Gross – Psychology: The Science of Mind and
Behaviour ISBN 144410831X
[19] Ludwig Von Mises. The Theory of Money and Credit.
Ludwig von Mises Institute, 2009. ISBN 1933550554.
Retrieved 2012-10-06.
[20] K.Marx, F.Engels The Communist Manifesto ISBN
1406851744 Retrieved 2012-06-04
[21] Aristotle
[22] D Harper – etymology online Retrieved 2012-06-09
[23] P Bayle, P Desmaizeaux, A Tricaud, A Gaudin – The dic-
tionary historical and critical of Mr. Peter Bayle, Volume
3 Printed for J. J. and P. Knapton; D. Midwinter; J. Broth-
erton; A. Bettesworth and C. Hitch ... [and 25 others],
1736 – Retrieved 2012-06-09
[24] P B Harvey, C E Schultz Religion in Republican Italy
Cambridge University Press, 2006 -ISBN 052186366X
Retrieved 2012-06-09
[25] Rome Reborn – University of Virginia – Institute for Ad-
vanced Technology in the Humanities Retrieved 2012-06-
09
[26] L Adkins, R A Adkins. Handbook to Life in Ancient
Rome. Oxford University Press, 16 July 1998. ISBN
0195123328. Retrieved 2012-06-09.
[27] Charles F. Horne (1915). “The Code of Hammurabi :
Introduction”. Yale University. Retrieved 14 September
2007.
[28] Sheila C. Dow (2005), "Axioms and Babylonian thought:
a reply", Journal of Post Keynesian Economics 27 (3), p.
385-391.
[29] The Reforms of Urukagina. History-world.org. Retrieved
on 2011-02-10.
[30] J Parkhurst – A Greek and English Lexicon to the New Tes-
tament: In which the Words and Phrases ... are Distinctly
Explained, and the Meanings Assigned to Each Authorized
by References to Passages of Scripture, and Frequently ...
Confirmed by Citations from the Old Testament and from
the Greek Writers. To this Work is Prefixed, a ... Greek
Grammar ... J Davis 1898 – Retrieved 2012-06-16
[31] J E Harrison – Epilegomena to the Study of Greek Religions
and Themis a Study of the Social Origins of Greek Religion
Kessinger Publishing, 1Jan 2003 ISBN 0766135284 Re-
trieved 2012-06-16
[32] secondary – Varro et al – Retrieved 2012-06-16

[33] D Sacks, O Murray A Dictionary of the Ancient Greek
World Oxford University Press, 6 February 1997 ISBN
0195112067 Retrieved 2012-06-16
[34] secondary – The journal of the Royal Society of Anti-
quaries of Ireland 1894 " ...great treasury tombs probably
range from this time to 1200...”
[35] J E Harrison – Themis: A Study of the Social Origins
of Greek Religion Cambridge University Press, 24 June
2010 ISBN 1108009492 Retrieved 2012-06-16
[36] Roy Davies & Glyn Davies (3 June 2012). A Comparative
Chronology of Money.
[37] G. Bailey, F. Law, M. Phillips (3 June 2012). Cowries,
Coins, Credit: The History of Money. ISBN 0756516765.
[38] secondary (not showing statutes relevant) – A C Johnson,
P Robinson Coleman-Norton, F C Bourne Ancient Ro-
man Statutes: A Translation with Introduction, Commen-
tary, Glossary, and Index Retrieved 2012-06-15
[39] C. Rollin, editor J. Bell – The Ancient History of the
Egyptians, Carthaginians, Assyrians, Babylonians, Medes
and Persians, Grecians, and Macedonians: Including a
History of the Arts and Sciences of the Ancients, Volume
2 G. Dearborn, 1836 Retrieved 2012-06-17
[40] D Harper – Etymology online Retrieved 2012-06-17
[41] D S Evans, R Schmalensee – Paying with Plastic: The
Digital Revolution in Buying and Borrowing MIT Press, 1
January 2005 ISBN 026255058X Retrieved 2012-06-17
[42] "attesting" – Cambridge Dictionary Online – Retrieved
2012-06-17
[43] I I Rubin, 'A History of Economic Thought', translated
Donald Filtzer, Ink Links, 1979 (original Moscow, 1929)
[44] Biblos Retrieved 2012-05-04
[45] secondary – Jean Andreau (Director of Studies at the
School of Higher study of the Social Sciences, Paris).
Banking and Business in the Roman World. Cambridge
University Press, 14 October 1999. Retrieved 9 April
2012.
[46] secondary – Encyclopedia Britannica & French Dictio-
nary (HarperCollins Publishers Limited 6 July 2010), Re-
trieved 2012-06-04
[47] F W Madden, F W Fairholt – History of Jewish coinage,
and of money in the Old and New Testament B. Quaritch,
1864 Retrieved 2012-05-04
[48] J Free, H F Vos Archaeology and Bible History Zonder-
van, 15 September 1992 , ISBN 0310479614 – Retrieved
2012-06-04
[49] F N Magill, C J Moose Dictionary of World Biography:
The Ancient World Taylor & Francis, 23 January 2003
ISBN 1579580408 Retrieved 2012-06-04
[50] I M Wise – History of the Israelitish nation: from Abra-
ham to the present time J. Munsell, 1854 Retrieved 2012-
06-04
[51] Madden & Fairholt
[52] “The Jewish Virtual Library”. American-Israeli Cooper-
ative Enterprise. Retrieved 2012-06-04.
[53] Xenophon (translated by W Moyle) -Discourse on Im-
proving the Revenue of the State of Athens – Retrieved
2012-06-09
[54] D Sacks, O Murray A Dictionary of the Ancient Greek
World Oxford University Press, 1997 – Retrieved 2012-
06-09
[55] secondary – – Retrieved 2012-06-09
[56] Greville Ewing – A Greek and English lexicon: originally
a Scripture lexicon; and now adapted to the Greek classics;
with a Greek grammar preﬁxed James Duncan, London
1827 (3rd Ed.) – Retrieved 2012-06-08
[57] L Kallet-Marx. Money, Expense, and Naval Power in
Thucydides’ History 1–5.24. University of California
Press, 3 November 1993. ISBN 0520078209. Retrieved
2012-07-12.
[58] E Schiappa – Protágoras and Logos: A Study in Greek
Philosophy and Rhetoric Univ of South Carolina Press,
2003 Retrieved 2012-07-12 ISBN 1570035210
[59] (secondary) -
[60] J Atwill – Rhetoric Reclaimed: Aristotle and the Liberal
Arts Tradition Cornell University Press, 1998 Retrieved
2012-07-12 ISBN 0801432634
[61] A L Friedberg, I S Friedberg. Gold Coins of the World:
From Ancient Times to the Present : an Illustrated Standard
Catalog with Valuations. Coin & Currency Institute, 30
July 2009. ISBN 0871843080. Retrieved 2012-06-04.
[62] The bible Retrieved 2012-06-04
[63] C T Seltman. Athens, Its History and Coinage Be-
fore the Persian Invasion. CUP Archive, 1924. ISBN
0871843080. Retrieved 2012-06-04.
[64] Kramer, History Begins at Sumer, pp. 52–55.
[65] David Graeber: Debt: The First 5000 Years, Melville
2011. Cf. http://www.socialtextjournal.org/reviews/
2011/10/review-of-david-graebers-debt.php
[66] D Schaps, “The Invention of Coinage in Lydia, in India,
and in China,” paper presented at the XIV International
Economic History Congress, Helsinki, 2006.
[67] Full text of “The earliest coins of Greece proper”.
archive.org. Retrieved on 2011-02-10.
[68] Coin images
[69] Ancient coinage of Aegina. snible.org. Retrieved on
2011-02-10.
[70] Goldsborough, Reid. “World’s First Coin”
[71] http://hsc.csu.edu.au/ancient_history/societies/
greece/spartan_society/sparta_social/ancient_sparta_
socialsystem.htm

1.11. BIBLIOGRAPHY 9
[72] M M Postan, E Miller. The Cambridge Economic His-
tory of Europe: Trade and industry in the Middle Ages.
Cambridge University Press, 28 August 1987. ISBN
0521087090.
[73] W A Shaw. The History of Currency, 1252–1896. Li-
brary of Alexandria, 1967. ISBN 1465518878. Retrieved
2012-06-04.
[74] “Sir Isaac Newton’s state of the gold and silver coin (25
September 1717).”. Pierre Marteau.
[75] “Mineral Profiles” (PDF). U.S. Geological Survey.
[76] Davies, Glyn, ‘’A History of Money’’, University of Wales,
1994, p.172, 339. ISBN 0-7083-1717-0
[77] Davies, Glyn, ‘’A History of Money’’, University of Wales,
1994, pp. 146–151 ISBN 0-7083-1717-0
[78] Richards
[79] Thus by the 19th century we find “[i]n ordinary cases of
deposits of money with banking corporations, or bankers,
the transaction amounts to a mere loan or mutuum, and the
bank is to restore, not the same money, but an equivalent
sum, whenever it is demanded.” Joseph Story, Commen-
taries on the Law of Bailments (1832, p. 66) and “Money,
when paid into a bank, ceases altogether to be the money
of the principal (see Parker v. Marchant, 1 Phillips 360);
it is then the money of the banker, who is bound to return
an equivalent by paying a similar sum to that deposited
with him when he is asked for it.” Lord Chancellor Cot-
tenham, Foley v Hill (1848) 2 HLC 28.
[80] Richards. The usual denomination was 50 or 100 pounds,
so these notes were not an everyday currency for the com-
mon people.
[81] Richards, p. 40
[82] Daniel R. Headrick (1 April 2009). Technology: A World
History. Oxford University Press. pp. 85–. ISBN 978-0-
19-988759-0.
[83] Ebrey, Walthall, and Palais (2006), 156.
[84] Bowman (2000), 105.
[85] Gernet (1962), 80.
[86] Ebrey et al., 156.
[87] Gernet, 80.
[88] Moshenskyi, Sergii (2008). History of the weksel: Bill of
exchange and promissory note. p. 55. ISBN 978-1-4363-
0694-2.
[89] Marco Polo (1818). The Travels of Marco Polo, a Vene-
tian, in the Thirteenth Century: Being a Description, by that
Early Traveller, of Remarkable Places and Things, in the
Eastern Parts of the World. pp. 353–355. Retrieved 19
September 2012.
[90] The Alchemists: Three Central Bankers and a World on
Fire - Neil Irwin - Google Books
[91] De Geschiedenis van het Geld (the History of Money),
1992, Teleac, page 96
[92] Geisst, Charles R. (2005). Encyclopedia of American
business history. New York. p. 39. ISBN 978-0-8160-
4350-7.
[93] Karl Gunnar Persson – An Economic History of Europe:
Knowledge, Institutions and Growth, 600 to the Present
Cambridge University Press, 28 January 2010 , ISBN
052154940X – Retrieved 2012-06-03
1.11 Bibliography
• Bowman, John S. (2000). Columbia Chronologies
of Asian History and Culture. New York: Columbia
University Press. ISBN 0231110049
• Ebrey, Walthall, Palais, (2006). East Asia: A
Cultural, Social, and Political History. Boston:
Houghton Mifflin Company. ISBN 0618133844
• Del Mar,A A History of Money in Ancient Countries
from the Earliest Times to the Present
• Gernet, Jacques (1962). Daily Life in China on the
Eve of the Mongol Invasion, 1250–1276. Stanford:
Stanford University Press. ISBN 0-8047-0720-0
• Richards, R. D. Early history of banking in England.
London: R. S. King, 1929.
1.12 Further reading
• Alvarado, Ruben, Follow the Money: The Money
Trail Through History, WordBridge 2013.
• Jevons, W. S. (1875), Money and the Mechanism of
Exchange. London: Macmillan.
• Menger, Carl, “On the Origin of Money”
• Szabo, Nick, Shelling Out – The Origins of Money
• Weatherford, Jack (1997), The History of Money.
New York: Crown Publishers.
1.13 External links
• The Marteau Early 18th-Century Currency Con-
verter A Platform of Research in Economic History.
• Linguistic and Commodity Exchanges by Elmer G.
Wiens. Examines the structural differences between
barter and monetary commodity exchanges and oral
and written linguistic exchanges.

• Historical Currency Conversion Page by Harold
Marcuse. Focuses on converting German marks to
US dollars since 1871 and inﬂating them to values
today, but has much additional information on the
history of currency exchange.

Chapter 2
Banknote
Banknotes with a face value of 5000 of different currencies.
A banknote (often known as a bill, paper money, or
simply a note) is a type of negotiable instrument known as
a promissory note, made by a bank, payable to the bearer
on demand. Banknotes were originally issued by com-
mercial banks, who were legally required to redeem the
notes for legal tender (usually gold or silver coin) when
presented to the chief cashier of the originating bank.
These commercial banknotes only traded at face value
in the market served by the issuing bank.[2]
Commercial
banknotes have been replaced by national banknotes is-
sued by central banks.
National banknotes are legal tender, meaning that
medium of payment is allowed by law or recognized
by a legal system to be valid for meeting a financial
obligation.[3]
Historically, banks sought to ensure that
The current banknotes of the Swiss franc series possess at least
eighteen security features.[1]
As of 2015, the Swiss 1000-franc
banknote is the world’s highest value currently-issued banknote,
followed by the Singapore 1000-dollar note and the 500 euro
note.
they could always pay customers in coins when they pre-
sented banknotes for payment. This practice of “back-
ing” notes with something of substance is the basis for
the history of central banks backing their currencies in
gold or silver. Today, most national currencies have
no backing in precious metals or commodities and have
value only by fiat. With the exception of non-circulating
high-value or precious metal issues, coins are used for
lower valued monetary units, while banknotes are used
for higher values.
The idea of using a durable light-weight substance as ev-
idence of a promise to pay a bearer on demand origi-
nated in China during the Han Dynasty in 118 BC, and
was made of leather.[4]
The first known banknote was
first developed in China during the Tang and Song dy-
nasties, starting in the 7th century. Its roots were in
merchant receipts of deposit during the Tang Dynasty
11

12 CHAPTER 2. BANKNOTE
(618–907), as merchants and wholesalers desired to avoid
the heavy bulk of copper coinage in large commercial
transactions.[5][6][7]
During the Yuan Dynasty, banknotes
were adopted by the Mongol Empire. In Europe, the con-
cept of banknotes was first introduced during the 13th
century by travelers such as Marco Polo,[8][9]
with Euro-
pean banknotes appearing in 1661 in Sweden.
Counterfeiting, the forgery of banknotes, is an inherent
challenge in issuing currency. It is countered by anticoun-
terfeiting measures in the printing of banknotes. Fight-
ing the counterfeiting of banknotes and cheques has been
a principal driver of security printing methods develop-
ment in recent centuries.
2.1 History
Main article: History of money
Paper currency first developed in Tang Dynasty China
during the 7th century, although true paper money did
not appear until the 11th century, during the Song Dy-
nasty. The usage of paper currency later spread through-
out the Mongol Empire. European explorers like Marco
Polo introduced the concept in Europe during the 13th
century.[8][9]
Napoleon issued paper banknotes in the
early 1800s.[10]
Paper money originated in two forms:
drafts, which are receipts for value held on account, and
“bills”, which were issued with a promise to convert at a
later date.
The perception of banknotes as money has evolved over
time. Originally, money was based on precious met-
als. Banknotes were seen as essentially an I.O.U. or
promissory note: a promise to pay someone in precious
metal on presentation (see representative money). With
the gradual removal of precious metals from the monetary
system, banknotes evolved to represent credit money, or
(if backed by the credit of a government) also fiat money.
Notes or bills were often referred to in 18th century
novels and were often a key part of the plot such as a
“note drawn by Lord X for £100 which becomes due in 3
months’ time”.
2.1.1 Early Chinese paper money
See also: List of Chinese inventions, Economy of the
Song Dynasty and Jiaozi (currency)
Development of the banknote began in the Tang Dynasty
during the 7th century, with local issues of paper cur-
rency, although true paper money did not appear until
the 11th century, during the Song Dynasty.[11][12]
Its roots
were in merchant receipts of deposit during the Tang Dy-
nasty (618–907), as merchants and wholesalers desired to
Song Dynasty Jiaozi, the world’s earliest paper money.
avoid the heavy bulk of copper coinage in large commer-
cial transactions.[5][6][7]
Before the use of paper, the Chinese used coins that were
circular, with a rectangular hole in the middle. Several
coins could be strung together on a rope. Merchants
in China, if they became rich enough, found that their
strings of coins were too heavy to carry around easily. To
solve this problem, coins were often left with a trustwor-
thy person, and the merchant was given a slip of paper
recording how much money he had with that person. If
he showed the paper to that person he could regain his
money. Eventually, the Song Dynasty paper money called
"jiaozi" originated from these promissory notes.
By 960 the Song Dynasty, short of copper for striking
coins, issued the first generally circulating notes. A note
is a promise to redeem later for some other object of
value, usually specie. The issue of credit notes is of-
ten for a limited duration, and at some discount to the
promised amount later. The jiaozi nevertheless did not
replace coins during the Song Dynasty; paper money was
used alongside the coins.
The central government soon observed the economic ad-
vantages of printing paper money, issuing a monopoly

2.1. HISTORY 13
right of several of the deposit shops to the issuance of
these certificates of deposit.[13]
By the early 12th century,
the amount of banknotes issued in a single year amounted
to an annual rate of 26 million strings of cash coins.[14]
By the 1120s the central government officially stepped in
and produced their own state-issued paper money (using
woodblock printing).[13]
A Yuan dynasty printing plate and banknote.
Even before this point, the Song government was amass-
ing large amounts of paper tribute. It was recorded that
each year before 1101 AD, the prefecture of Xinan (mod-
ern Xi-xian, Anhui) alone would send 1,500,000 sheets
of paper in seven different varieties to the capital at
Kaifeng.[15]
In that year of 1101, the Emperor Huizong
of Song decided to lessen the amount of paper taken in
the tribute quota, because it was causing detrimental ef-
fects and creating heavy burdens on the people of the
region.[16]
However, the government still needed masses
of paper product for the exchange certificates and the
state’s new issuing of paper money. For the printing
of paper money alone, the Song court established sev-
eral government-run factories in the cities of Huizhou,
Chengdu, Hangzhou, and Anqi.[16]
The size of the workforce employed in these paper money
factories were quite large, as it was recorded in 1175 AD
that the factory at Hangzhou alone employed more than
a thousand workers a day.[16]
However, the government
issues of paper money were not yet nationwide standards
of currency at that point; issues of banknotes were lim-
ited to regional zones of the empire, and were valid for
use only in a designated and temporary limit of 3-years’
time.[14]
The geographic limitation changed between the years
1265 and 1274, when the late Southern Song government
finally produced a nationwide standard currency of paper
money, once its widespread circulation was backed by
gold or silver.[14]
The range of varying values for these
banknotes was perhaps from one string of cash to one
hundred at the most.[14]
Ever since 1107, the govern-
ment printed money in no less than six ink colors and
printed notes with intricate designs and sometimes even
with mixture of unique fiber in the paper to avoid coun-
terfeiting.
The founder of the Yuan Dynasty, Kublai Khan, issued
paper money known as Chao in his reign. The original
notes during the Yuan Dynasty were restricted in area and
duration as in the Song Dynasty, but in the later course
of the dynasty, facing massive shortages of specie to fund
their ruling in China, they began printing paper money
without restrictions on duration.The Venetian merchants
were impressed by the fact that the Chinese paper money
was guaranteed by the State.
2.1.2 European explorers and merchants
Marco Polo described the use of early banknotes in China to
Medieval Europe in his book, The Travels of Marco Polo.
In the 13th century, Chinese paper money became known
in Europe through the accounts of travelers, such as
Marco Polo and William of Rubruck.[8][17]
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 "How the Great Kaan Causeth the Bark of
Trees, Made Into Something Like Paper, to Pass for
Money All Over his Country.”[9]
All these pieces of paper are, issued with
as much solemnity and authority as if they
were of pure gold or silver... with these pieces
of paper, made as I have described, Kublai
Khan causes all payments on his own account

to be made; and he makes them to pass
current universally over all his kingdoms and
provinces and territories, and whithersoever
his power and sovereignty extends... and
indeed everybody takes them readily, for
wheresoever a person may go throughout the
Great Kaan’s dominions he shall find these
pieces of paper current, and shall be able to
transact all sales and purchases of goods by
means of them just as well as if they were
coins of pure gold
— Marco Polo, The Travels of Marco Polo
In medieval Italy and Flanders, because of the insecurity
and impracticality of transporting large sums of cash over
long distances, money traders started using promissory
notes. 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 can be
seen as a predecessor to regular banknotes.[18]
The term
“bank note” comes from the notes of the bank (“nota di
banco”) and dates from the 14th century; it originally rec-
ognized 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 interna-
tional 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.
2.1.3 Modern banknote
The first paper money in Europe, issued by the Stockholms Banco
in 1666.
The shift toward the use of these receipts as a means
of payment took place in the mid-17th century. The
goldsmith-bankers of London began to give out the re-
ceipts as payable to the bearer of the document rather
than the original depositor. This meant that the bill could
be used as a form of currency based on the security de-
posited with the goldsmith. [19]
The bankers also began
issuing a greater value of notes than the total value of their
physical reserves in the form of loans, on the assumption
that they wouldn't have to redeem all of their issued ban-
knotes at the same time. This pivotal shift changed the
simple promissory note into an agency for the expansion
of the monetary supply itself. As these receipts were in-
creasingly used in the money circulation system, depos-
itors began to ask for multiple receipts to be made out
in smaller, fixed denominations for use as money. The
receipts soon became a written order to pay the amount
to whoever had possession of the note. These notes are
credited as the first modern banknotes.[18][20]
The first short-lived attempt at issuing banknotes by a
central bank was in 1661 by Stockholms Banco, a pre-
decessor of the Bank of Sweden.[21]
These replaced
the copper-plates being used instead as a means of
payment.[22]
This banknote issue was brought about by
the peculiar circumstances of the Swedish coin supply.
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 is-
sue from the bank currency reserves. Three years later,
the bank went bankrupt, after rapidly increasing the ar-
tificial money supply through the large-scale printing of
paper money. A new bank, the Riksens Ständers Bank
was established in 1668, but didn't issue banknotes until
the 19th-century.[23]
2.1.4 Permanent issue of banknotes
The sealing of the Bank of England Charter (1694). The Bank
began the first permanent issue of banknotes a year later.
The modern banknote rests on the assumption that money

2.2. ISSUE OF BANKNOTES 15
is determined by a social and legal consensus. A gold
coin’s value is simply a reflection of the supply and de-
mand mechanism of a society exchanging goods in a
free market, as opposed to stemming from any intrin-
sic property of the metal. By the late 17th century, this
new conceptual outlook helped to stimulate the issue of
banknotes. The economist Nicholas Barbon wrote that
money “was an imaginary value made by a law for the
convenience of exchange.”[24]
A temporary experiment
of banknote issue was carried out by Sir William Phips
as the Governor of the Province of Massachusetts Bay in
1690 to help fund the war effort against France.[25]
Fifty-five dollar bill in Continental currency; leaf design by Ben-
jamin Franklin, 1779
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 ini-
tially handwritten to a precise amount and issued on de-
posit or as a loan. There was a gradual move toward the
issuance of fixed denomination notes, and by 1745, stan-
dardized printed notes ranging from £20 to £1,000 were
being printed. Fully printed notes that didn't require the
name of the payee and the cashier’s signature first ap-
peared in 1855.[26]
The Scottish economist John Law helped establish ban-
knotes 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 estab-
lishing 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.
2.1.5 Central bank issuance of legal tender
Originally, the banknote was simply a promise to the
bearer that he could redeem it for its value in specie, but
in 1833 the second in a series of Bank Charter Acts estab-
The Bank of England gained a monopoly over the issue of ban-
knotes with the Bank Charter Act of 1844.
lished that banknotes would be considered as legal tender
during peacetime. [27]
Until the mid-nineteenth century, commercial banks
were able to issue their own banknotes, and notes is-
sued by provincial banking companies were commonly
in circulation.[28]
The Bank Charter Act of 1844, which
established the modern central bank,[29]
restricted autho-
risation to issue new banknotes to the Bank of England,
which would henceforth have sole control of the money
supply. At the same time, the Bank of England was re-
stricted to issue new banknotes only if they were 100%
backed by gold or up to £14 million in government debt.
The Act served to restrict the supply of new notes reach-
ing circulation, and gave the Bank of England an effective
monopoly on the printing of new notes.[30][31]
2.2 Issue of banknotes
Generally, a central bank or treasury is solely responsi-
ble within a state or currency union for the issue of ban-
knotes. However, this is not always the case, and histor-
ically the paper currency of countries was often handled
entirely by private banks. Thus, many different banks or
institutions may have issued banknotes in a given coun-
try. Commercial banks in the United States had legally
issued banknotes before there was a national currency;
however, these became subject to government authoriza-
tion from 1863 to 1935. In the last of these series, the
issuing bank would stamp its name and promise to pay,
along with the signatures of its president and cashier on a
preprinted note. By this time, the notes were standardized
in appearance and not too different from Federal Reserve
Notes.
In a small number of countries, private banknote issue
continues to this day. For example, by virtue of the com-
plex constitutional setup in the United Kingdom, certain
commercial banks in two of the union’s four constituent

A $5 note issued by Citizens Bank of Louisiana in the 1850s.
Example of a banknote issued by a commercial bank: a 2007
£20 note issued by the Bank of Scotland
countries (Scotland and Northern Ireland) continue to
print their own banknotes for domestic circulation, even
though they are not fiat money or declared in law as legal
tender anywhere. The UK’s central bank, the Bank of
England, prints notes which are legal tender in England
and Wales; these notes are also usable as money (but not
legal tender) in the rest of the UK (see Banknotes of the
pound sterling).
In the two Special Administrative Regions of the People’s
Republic of China, arrangements are similar to those in
the UK; in Hong Kong, three commercial banks are li-
censed to issue Hong Kong dollar notes,[32]
and in Macau,
banknotes of the Macanese pataca are issued by two dif-
ferent commercial banks. In Luxembourg, the Banque
Internationale à Luxembourg was entitled to issue its own
Luxembourgish franc notes until the introduction of the
Euro in 1999.[33]
As well as commercial issuers, other organizations may
have note-issuing powers; for example, until 2002 the
Singapore dollar was issued by the Board of Commission-
ers of Currency Singapore, a government agency which
was later taken over by the Monetary Authority of Singa-
pore.[32]
2.3 Advantages and disadvantages
Prior to the introduction of banknotes, precious or semi-
precious metals minted into coins to certify their sub-
stance were widely used as a medium of exchange. The
value that people attributed to coins was originally based
upon the value of the metal, but over time, coins devel-
oped a value in their own right which might have differed
substantially from the metal from which they were made.
Banknotes were originally a claim for the coins or pre-
cious metals held by the bank, but due to the ease with
which they could be transferred and the confidence that
people had in the capacity of the bank to settle the notes
in coins if presented, they gradually became a means of
exchange in their own right. They now make up a very
small proportion of the “money” that people think that
they have as demand deposit bank accounts and electronic
payments have negated the need to carry notes and coins.
Banknotes have a natural advantage over coins in that they
are lighter to carry but are also less durable. Banknotes
issued by commercial banks had counterparty risk, mean-
ing 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 banknotes 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 hun-
dreds 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.[34][35]
Other costs of using bearer money include:
1. Discounting to face value: Before national curren-
cies and efficient clearing houses, banknotes were
only redeemable at face value at the issuing bank.
Even a branch bank could discount notes of other
branches of the same bank. The discounts usually
increased with distance from the issuing bank. The
discount also depended on the perceived safety of
the bank. When banks failed the notes were usually
partly redeemed out of reserves, but sometimes be-
came worthless.[36][37]
The problem of discounting
within a country does not exist with national curren-
cies; however, under floating exchange rates curren-
cies are valued relative to one another in the foreign
exchange market.
2. Counterfeiting paper notes has always been a prob-
lem, especially since the introduction of color pho-
tocopiers and computer image scanners. Numerous
banks and nations have incorporated many types of
countermeasures in order to keep the money secure;
however, extremely sophisticated counterfeit notes
known as superdollars have been detected in recent
years.
3. Manufacturing or issue costs. Coins are produced by
industrial manufacturing methods that process the
precious or semi-precious metals, and require addi-
tions of alloy for hardness and wear resistance. By
contrast bank notes are printed paper (or polymer),
and typically have a higher cost of issue, especially
in larger denominations, compared with coins of the
same value.
4. Wear costs. Banknotes lose economic value by
wear, since, even if they are in poor condition, they
are still a legally valid claim on the issuing bank.
However, banks of issue do have to pay the cost

2.4. MATERIALS USED FOR BANKNOTES 17
of replacing banknotes in poor condition and paper
notes wear out much faster than coins.
5. Cost of transport. Coins can be expensive to trans-
port for high value transactions, but banknotes can
be issued in large denominations that are lighter than
the equivalent value in coins.
6. Cost of acceptance. Coins can be checked for au-
thenticity by weighing and other forms of exami-
nation and testing. These costs can be significant,
but good quality coin design and manufacturing can
help reduce these costs. Banknotes also have an ac-
ceptance cost, the costs of checking the banknote’s
security features and confirming acceptability of the
issuing bank.
The different disadvantages between coins and banknotes
imply that there may be an ongoing role for both forms
of bearer money, each being used where its advantages
outweigh its disadvantages.
2.4 Materials used for banknotes
A US twenty-dollar paper banknote
2.4.1 Paper banknotes
Most banknotes are made from cotton paper (see also
paper) with a weight of 80 to 90 grams per square me-
ter. The cotton is sometimes mixed with linen, abaca,
or other textile fibres. Generally, the paper used is dif-
ferent from ordinary paper: it is much more resilient,
resists wear and tear (the average life of a banknote is
two years),[38]
and also does not contain the usual agents
that make ordinary paper glow slightly under ultraviolet
light. Unlike most printing and writing paper, banknote
paper is infused with polyvinyl alcohol or gelatin, instead
of water, to give it extra strength. Early Chinese ban-
knotes were printed on paper made of mulberry bark.
Mitsumata (Edgeworthia chrysantha) and other fibers are
used in Japanese banknote paper[39]
(a kind of Washi).
Most banknotes are made using the mould made process
in which a watermark and thread is incorporated during
the paper forming process. The thread is a simple look-
ing security component found in most banknotes. It is
however often rather complex in construction compris-
ing fluorescent, magnetic, metallic and micro print ele-
ments. By combining it with watermarking technology
the thread can be made to surface periodically on one
side only. This is known as windowed thread and fur-
ther increases the counterfeit resistance of the banknote
paper. This process was invented by Portals, part of the
De La Rue group in the UK. Other related methods in-
clude watermarking to reduce the number of corner folds
by strengthening this part of the note, coatings to reduce
the accumulation of dirt on the note, and plastic windows
in the paper that make it very hard to copy.
Counterfeiting and security measures
The ease with which paper money can be created, by both
legitimate authorities and counterfeiters, has led both to
a temptation in times of crisis such as war or revolution
to produce paper money which was not supported by pre-
cious metal or other goods, thus leading to Hyperinflation
and a loss of faith in the value of paper money, e.g.
the Continental Currency produced by the Continental
Congress during the American Revolution, the Assignats
produced during the French Revolution, the paper cur-
rency produced by the Confederate States of America
and the Individual States of the Confederate States of
America, the financing of World War I by the Central
Powers (by 1922 1 gold Austro-Hungarian krone of 1914
was worth 14,400 paper Kronen), the devaluation of the
Yugoslav Dinar in the 1990s, etc. Banknotes may also be
overprinted to reflect political changes that occur faster
than new currency can be printed.
In 1988, Austria produced the 5000 Schilling banknote
(Mozart), which is the first foil application (Kinegram)
to a paper banknote in the history of banknote printing.
The application of optical features is now in common use
throughout the world.
Many countries’ banknotes now have embedded
holograms.
2.4.2 Polymer banknotes
10 Taka polymer note from Bangladesh
Main article: Polymer banknote

In 1983, Costa Rica and Haiti issued the first Tyvek
and the Isle of Man issued the first Bradvek poly-
mer (or plastic) banknotes; these were printed by
the American Banknote Company and developed by
DuPont. These early plastic notes were plagued with
issues such as ink wearing off and were discontinued.
In 1988, after significant research and development in
Australia by the Commonwealth Scientific and Indus-
trial Research Organisation (CSIRO) and the Reserve
Bank of Australia, Australia produced the first polymer
banknote made from biaxially-oriented polypropylene
(plastic), and in 1996 became the first country to
have a full set of circulating polymer banknotes of
all denominations completely replacing its paper ban-
knotes. Since then, other countries to adopt circulating
polymer banknotes include Bangladesh, Brazil, Brunei,
Canada, Chile, Guatemala, Dominican Republic, In-
donesia, Israel, Malaysia, Mexico, Nepal, New Zealand,
Papua New Guinea, Paraguay, Romania, Samoa, Singa-
pore, the Solomon Islands, Sri Lanka, Thailand, Vietnam,
and Zambia, with other countries issuing commemorative
polymer notes, including China, Kuwait, the Northern
Bank of Northern Ireland, Taiwan and Hong Kong.[40]
Another country indicating plans to issue polymer ban-
knotes is Nigeria. In 2005, Bulgaria issued the world’s
first hybrid paper-polymer banknote.
Polymer banknotes were developed to improve durability
and prevent counterfeiting through incorporated security
features, such as optically variable devices that are ex-
tremely difficult to reproduce.
2.4.3 Other materials
Over the years, a number of materials other than paper
have been used to print banknotes. This includes various
textiles, including silk, and materials such as leather.
Silk and other fibers have been commonly used in the
manufacture of various banknote papers, intended to pro-
vide both additional durability and security. Crane and
Company patented banknote paper with embedded silk
threads in 1844 and has supplied paper to the United
States Treasury since 1879. Banknotes printed on pure
silk “paper” include “emergency money” Notgeld issues
from a number of German towns in 1923 during a pe-
riod of fiscal crisis and hyperinflation. Most notoriously,
Bielefeld produced a number of silk, leather, velvet, linen
and wood issues. These issues were produced primarily
for collectors, rather than for circulation. They are in de-
mand by collectors. Banknotes printed on cloth include
a number of Communist Revolutionary issues in China
from areas such as Xinjiang, or Sinkiang, in the United
Islamic Republic of East Turkestan in 1933. Emergency
money was also printed in 1902 on khaki shirt fabric dur-
ing the Boer War.
Leather banknotes (or coins) were issued in a number
of sieges, as well as in other times of emergency. Dur-
Bielefeld Germany 25 Mark 1921. Silk Banknote.[41]
Russian American Company-issued Alaskan parchment scrip (c.
1852)

2.6. DESTRUCTION 19
ing the Russian administration of Alaska, banknotes were
printed on sealskin. A number of 19th century issues are
known in Germanic and Baltic states, including the places
of Dorpat, Pernau, Reval, Werro and Woiseck. In addi-
tion to the Bielefeld issues, other German leather Notgeld
from 1923 is known from Borna, Osterwieck, Paderborn
and Pößneck.
Other issues from 1923 were printed on wood, which was
also used in Canada in 1763–1764 during Pontiac’s Re-
bellion, and by the Hudson’s Bay Company. In 1848,
in Bohemia, wooden checkerboard pieces were used as
money.
Even playing cards were used for currency in France in
the early 19th century, and in French Canada from 1685
until 1757, the Colony of Louisiana, Dutch Guiana, and
in the Isle of Man in the beginning of the 19th century,
and again in Germany after World War I.
Most recently, Bisphenol S (BPS), has been frequently
used in the production of banknotes worldwide. BPS is
an endocrine disruptor that is subject to human dermal
absorption through handling banknotes.[42]
2.4.4 Vertical orientation
Vertical currency is a type of currency in which the ori-
entation has been changed from the conventional hor-
izontal to a vertical orientation. Dowling Duncan, a
self-touted multidisciplinary design studio, conducted a
study in which they determined people tend to handle and
deal with money vertically rather than horizontally, espe-
cially when currency is processed through ATM and other
money machines. They also note how money transactions
are conducted vertically not horizontally.[43]
Bermuda,
Brazil, Cape Verde, Colombia, Israel, Switzerland, and
Venezuela have adopted vertically oriented currency.
2.5 Vending machines and ban-
knotes
People are not the only economic actors who are required
to accept banknotes. In the late 20th century vending
machines were designed to recognize banknotes of the
smaller values long after they were designed to recog-
nize coins distinct from slugs. This capability has be-
come inescapable in economies where inflation has not
been followed by introduction of progressively larger coin
denominations (such as the United States, where several
attempts to make dollar coins popular in general circu-
lation have largely failed). The existing infrastructure of
such machines presents one of the difficulties in changing
the design of these banknotes to make them less counter-
feitable, that is, by adding additional features so easily
discernible by people that they would immediately reject
banknotes of inferior quality, for every machine in the
The Colombian 50,000 Peso note
country would have to be updated.
2.6 Destruction
See also: Money burning
Banknotes last an average of three years until they are
no longer fit for circulation, after which they are col-
lected for destruction, usually recycling or shredding.[44]
A banknote is removed from the money supply by banks
or other financial institutions because of everyday wear
and tear from its handling. Banknote bundles are passed
through a sorting machine that determines whether a par-
ticular note needs to be shredded, or are removed from
the supply chain by a human inspector if they are deemed
unfit for continued use – for example, if they are muti-
lated or torn. Counterfeit banknotes are destroyed unless

they are needed for evidentiary or forensic purposes.
Contaminated banknotes are also decommissioned. A
Canadian government report indicates:
Types of contaminants include: notes
found on a corpse, stagnant water, contami-
nated by human or animal body fluids such as
urine, feces, vomit, infectious blood, fine haz-
ardous powders from detonated explosives, dye
pack and/or drugs...[45]
These are removed from circulation primarily to prevent
the spread of diseases.
When taken out of circulation, Australian Plas-
tic/Polymer bank notes are melted down and mixed
together to form plastic garbage bins.[46]
In the US, the nickname "Fed Shreds" refers to paper
money which has been shredded after becoming unfit for
circulation. Although these shredded banknotes are gen-
erally landfilled, they are sometimes sold in small bags as
souvenirs.[47]
2.7 Intelligent Banknote Neutrali-
sation System (IBNS)
Intelligent Banknote Neutralisation System (IBNS) is a
security system which renders banknotes unusable by
marking them permanently as stolen with a degradation
agent. Marked (stained) banknotes cannot be brought
back into circulation easily and can be linked to the crime
scene. Today’s most used degradation agent is a special
security ink which cannot be removed from the banknote
easily and not without destroying the banknote itself, but
other agents also exist. Today IBNS are used to protect
banknotes in ATM's, Retail Machines and during cash-
in-transit operations.
2.8 Dynamic Intelligent Currency
Encryption (DICE)
Dynamic Intelligent Currency Encryption (DICE) is a se-
curity technology introduced in 2015 by British company
EDAQS, which devaluates banknotes remotely that are
illegal or have been stolen. The technology is based on
identifiable banknotes - that could be an RFID chip or
a barcode - and connects to a digital security system to
verify the validity of the banknote. The system claims
that the banknotes are unforgeable and contribute to solve
cash-related problems as well as fight crime and terrorism.
In another note, the DICE benefits cover and solve almost
all cash-related issues that are seen by governments to be
a motivation for the progressive abolition of cash. [48] [49]
2.9 Confiscation and asset forfei-
ture
In the United States there are many laws that allow the
confiscation of cash and other assets from the bearer if
there is suspicion that the money came from an illegal
activity.[50]
Because a significant amount of U.S. cur-
rency contains traces of cocaine and other illegal drugs, it
is not uncommon for innocent people searched at airports
or stopped for traffic violations to have cash in their pos-
session sniffed by dogs for drugs and then have the cash
seized because the dog smelled drugs on the money. It
is then up to the owner of the money to prove where the
cash came from at his own expense. Many people simply
forfeit the money.[51]
In 1994, the United States Court
of Appeals, Ninth Circuit, held in the case of UNITED
STATES of America v. U.S. CURRENCY, $30,060.00
(39 F.3d 1039 63 USLW 2351, No. 92-55919) that the
widespread presence of illegal substances on paper cur-
rency in the Los Angeles area created a situation where
the reaction of a drug-sniffing dog would not create prob-
able cause for civil forfeiture.[52]
2.10 Displacement by electronic
currency
Banknotes have increasingly been displaced by credit and
debit cards and electronic money transfers. Some govern-
ments, such as Canada, are considering replacing paper
notes and coins with digital currency.[53][54]
Sweden has
begun implementing digital currency.[55]
2.11 Paper money collecting as a
hobby
Banknote collecting, or Notaphily, is a slowly grow-
ing area of numismatics. Although generally not as
widespread as coin and stamp collecting, the hobby is
slowly expanding. Prior to the 1990s, currency collect-
ing was a relatively small adjunct to coin collecting, but
the practice of currency auctions, combined with larger
public awareness of paper money, has caused more inter-
est in and valuation of rare banknotes.
Since 2007 Sanjay Relan, of Hong Kong, has held the
Guinness world record for collecting 221 banknotes rep-
resenting 221 different countries. For a short period in
2007, he also held the Guinness world record for collect-
ing 235 coins representing 235 different countries.[56]

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