By Ray Tellili
Bank notes came into being long after bartering, shells, clay tablets, leather, and coinage.The Chinese created the first bank note in the 700s during the Tang dynasty. It was basically a bank draft. You would deposit coins with an official, who gave you a certificate (like a receipt). You could then retrieve your money (with your certificate) from a government office or any of the 40 private banking offices. Merchants evolved this idea over the next 300 years by allowing these certificates or ‘notes’ to be exchanged between individuals. Now, you could deposit some coins, get a certificate for that same sum of coin or metal, and use it to buy something other than coinage.

The use of paper money was in part triggered by a shortage in copper that was used in coinage. Also, using metals, and precious metals like silver and gold frequently resulted in supply issues. On top of that, lugging around heavy copper was a nuisance. With these certificates, the Government could pay distant officials with this new light weight money without having to transport metals over long distances.
These new bank notes also had an expiry date, for example 3 years, and could only be used in certain zones. It’s ironic that the Chinese invented paper money or at least the first bank note, and now, they are the first to roll out the first centralized and fully functional digital currency – the digital yuan.
Government certificates ended up being bartered for other goods. Merchants were not going to go to the trouble of going to the capital to exchange their certificates. Within decades of the certificates being issued, they became transferable. Around the year 1000 AD inflation in China became really problematic, so the government stepped in and created their own printing houses.
Successive dynasties and rulers carried on with the ingenious use of paper money but found out quickly about inflation when the currency was not backed by cash or commodities. The Chin dynasty that ruled over northern China for example experienced this problem as did the Mongols. This is what Fiat currency is – money not backed by a physical commodity like gold. For Fiat to work you need responsible supply and demand mechanisms and stable government.
The bank notes were about the size of a regular sheet of paper and were printed on copper plates with red ink, unique fibers and intricate designs for authenticity. They had a warning for would-be counterfeiters – something to the effect of ‘counterfeiters will be decapitated’.
China created a sophisticated money printing network and financial system – this in the middle ages. Only government issued money could be used as legal tender and money could only be printed by the government.With time there were no longer geographic limitations of where these bank notes could be used – you could use them anywhere within the massive Mongol empire and beyond. Expiry dates were also removed.
Marco Polo was impressed by the use of paper money in his travels to China in the late 1200s. The very idea of paper as money was met with disbelief in Europe. In the best seller of the time, ‘The Travels of Marco Polo’, he writes, ”All these pieces of paper are [issued with as much solemnity and authority as if they were of pure gold or silver… And nobody dares to refuse them on pain of death… Furthermore, all merchants arriving from India or other countries, and bringing with them gold or silver or gems and pearls, are prohibited from selling to anyone but the Emperor. the Emperor then pays a liberal price for them in those pieces of paper. And with this paper-money they can buy what they like anywhere over the Empire, whilst it is also vastly lighter to carry about on their journeys.”
From China, the concept spread into medieval Europe and elsewhere. Promissory notes morphed into bank notes. Promissory notes were basically receipts you could cash in anywhere. You made your deposit and you could withdraw it elsewhere. For obvious safety reasons, this was popular for merchants and travelers, especially over long distances. Italian merchants in the middle ages really helped evolve the banking system, and financial networks around Europe, the Mediterranean and beyond. The crusaders also developed an early network prior to that also.
In 1661, the first central bank to attempt to issue bank notes failed. That was in Sweden. An influx of cheap copper complicated things. The copper coins had to become heavier and larger to maintain their equivalent value to silver, so the merchants switched to paper receipts – bank notes. The experiment failed when inflation set in due to irresponsible printing and accounting. The bank went bankrupt. In another first adopter irony, Sweden will be the first country to go completely cashless by 2023.
About 30 years after the Swedish experiment, in 1694, England needed money to wage war against France, and so was born the Bank of England, the oldest central bank in the world. The English crown gave exclusive money printing rights to the Bank of England which helped raise funds by giving cash to the crown in exchange for bonds that they could lend out again.

Individuals could now deposit money and get paper in exchange, but these certificates were hand written and had the owners name on it with a precise amount. Fixed denominations like 20s or 1000 pound notes came into being some 5O years later, but it wasn’t until the 1850s that bank notes no longer required a specific owner’s name. That’s really the point at which we can compare the bank note to our modern bills. The US federal government began printing bank notes in 1862.
Did you know:
- The temple of Juno Moneta in ancient Rome was where coins were minted and so the word money has come down to us from there. Monnaie in French.
- In ancient China, they went from trading objects such as swords, and tools to trading miniature replicas of those same objects, like tiny tools and swords. Sharp miniatures become a nuisance to carry in a pocket, and so these objects developed into round objects – the first recognizable coins.
- The word cash is derived from the Latin Capsa meaning box and old French Caisse meaning money box.
- Dollar comes from the German word ‘Thaler’ and Flemish and low German ‘daler’. Taler was the name of a valley where silver was minted in Germany.
- In the late 1700s in colonial America, the Spanish ‘peso de ocho reales’ (piece of eight) was the main currency in use and was abbreviated as PS. With time one letter was written on top of the other. Thus, the dollar sign $ came to us from that abbreviation.
- The Royal Canadian Mint has printed money or minted coins for over 73 countries.
- Those ridges on the side of coins were placed there originally to prevent the metal from being shaved off.
- The Mesopotamian Shekel was the first and big regional money to be widely used in the in the word; in Egypt, Babylon, the Near East, etc. (around 5 thousand years ago). Copper was first used because you could take the copper and make something out of it, but then it was replaced by silver.
- Counterfeit money is often detected because it is too perfect. More perfect than actual money.