World History
A World History of Paper Currency
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A Beginning in Asia
Paper money first appeared in Asia long before the Western
world. This fact should not be surprising considering paper
was invented in China in the 2nd Century AD, approximately
1,000 years before it arrived in Europe.
Called flying money, paper notes first appeared
in the Chinese province of Sichuan during the reign of Emperor
Hsien Tsung. They represented a deposit of iron coins and
were issued by important families and had no official state
authorization. The notes became so popular that the government
eventually stood behind these notes and issued a law punishing
counterfeiters with death. None are known to exist today.
Eventually, under the Sung Dynasty, the government issued
its own paper money, called convenient money. Its
management was held in the capital Ch'angan. These notes
had their own denomination system and were convertible every
three years. They later experienced a currency feature very
common today: inflation.
The First Western Forms
of Paper Money
All early forms of paper currency in the Western Hemisphere
occurred during times of war or other emergency situations.
The first instance of paper money in Europe occurred in
Spain in 1438. During a Moor invasion, a Spanish military
leader issued some paper money to soldiers that circulated
all over his city. No known notes have survived.
In 1574, the Dutch city of Leyden issued cardboard coins
minted from the cover or prayer books while Holland was
trying to regain its independence from the invading Spanish.
The Italian city of Candia later issued its only paper money
complete with different denominations. It was issued to
citizens after the city's Superintendent recalled all gold
and silver. After a shipment of coins arrived from Venice,
all notes were fully reimbursed.
Early European Banknotes
Sweden is home of the first European banknotes. Its copper
Taller coins were very large and suffered from changing
world prices for the metal in 1660. To cope with the problem,
Johan Palmstruch's bank in Stockholm issued hand-written
notes with set denominations, issuing date, and pressed
stamps the following year. Later issues were made with a
press; only the signatures remained hand-written.
Palmstruch's notes became very popular and widely used
in Sweden. They were easily transferable, could be used
by anyone, and were payable on sight, making them much easier
to use and superior to the available forms of credit at
the time. Unfortunately for Palmstruch, he had never consulted
the King.
Rumors circulated that coins were not available for reimbursement
and the monarchy ordered the notes to be devalued. Eventually,
Palmstruch's bank was closed and he was imprisoned. In 1668,
the government recalled all circulating notes and issued
its own official currency, which did not share many of the
best properties of Palmstruch's notes.
By the 1680's, the use of paper money began to take place
in other European countries and the New World. Canada (still
a French colony) circulated notes on playing cards. Other
colonies soon developed their own paper notes.
Right before the turn of the 18th Century, a few nations
established national banks, including the Banks of England
and Scotland. Scotland began printing pounds right away,
a few years before England's bank began issuing banknotes
in 1807.
Norway also circulated notes at this time, called Rixdaler.
Jorgen thor Mohlen received permission from the ruling state
of Denmark to print these notes on watermarked paper. Much
like Sweden, rumors of insufficient backing spread and Mohlen
soon died in misery.
John Law - Currency
Champion
There was no one, perhaps, as key to the widespread use
of paper currency in the Western Hemisphere as John Law.
The son of a wealthy goldsmith, Law earned the title of
Earl of Lauriston at the age of twelve.
Law studied finance and traversed Europe throughout his
twenties, having written several works about paper currency,
including Memory to Prove that a New Type of Money Can
be Better than Gold and Silver.
Law first garnered interest from Vittorio Amedeo III, an
Italian duke in Turin, to issue paper money in 1712. After
the Duke was appointed King of Sicily, however, the project
was dropped.
Law then moved to France, taking 1.5 million Livres with
him. At the time, the French Treasury only held 700,000
Livres and had a deficit of 78 million Livres. Wanting to
avoid becoming the first European state to ever declare
bankruptcy, the government took a chance with Law. Using
his own expenses, Law opened the Banque Generale on June
5th, 1715.
Both the bank and the currency enjoyed wild success as
the French economy turned around completely by 1718. In
this year, the state took over operations and turned Law's
bank into the Banque Royale. The government spent foolishly
and recklessly while Law was pacified with gifts, honors,
and titles.
Soon the government's lavish spending caught up with it
and disaster hit the country. Law left the country, but
worked from abroad to repair the economic climate. He even
refused the large bags of gold coins - the true, safe money
of the time - offered by Philip of Orleans. Law again turned
France's economy back around, but he was repaid by the ruling
party with only slander and mudslinging.
A Final Word
Paper currency would soon reach most nations in some form
or another, but it always met with difficulty. Like Palmstruch,
Mohlen, and Law, many paper money trailblazers often faced
incredible hardships, but without their contributions, people's
pockets would be much heavier today.
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