Why did the Chinese invent paper money

Paper money - the history of banknotes

Many people empty their wallets from time to time so that it doesn't get too heavy. Over time, some coins will build up and drive up the weight of the wallet.

For this reason alone, it is practical not to rely solely on coins. Paper money has been in use for many years and is very popular; after all, it saves space and, above all, weight.

The history of paper money is - like the history of money itself - long and exciting. It was not introduced suddenly and definitively.

Rather, there have been attempts in different places and at different times to replace or supplement coins with paper. Today it is impossible to imagine life without paper money.

The roots of paper money

There are different opinions about which piece of paper can actually be considered the first paper money in the world.

However, there is agreement on the question of the region in which banknotes originate. China is responsible for the first paper money - paper itself was also invented here.

Merchants invented paper money. They faced the problem that with increasing trade, on the one hand, the transport of copper coins became more and more difficult. On the other hand, there was always a shortage of coins, so alternatives were sought.

So the dealers issued so-called bills of exchange, which were covered by raw materials or coins. These bills of exchange are mostly considered to be the first paper money that was in circulation. Chinese authorities quickly recognized the advantage of this change and granted themselves the spending monopoly. This happened in 1024, which was considered to be the year paper money was born.

How paper money came to Europe

Paper money did not gain acceptance in Europe until centuries later. The Venetian merchant Marco Polo traveled to China in the 13th century and, on his return, also reported on the paper money that he had got to know on his trip. However, many more years passed before there were first attempts to introduce banknotes in Europe.

In 1483 Spain issued the first paper money in Europe due to a coin shortage. In 1609 the Bank of Amsterdam and in 1661 the Bank of Stockholm also issued banknotes. However, these attempts to establish paper money were extremely arduous as there was a great deal of suspicion among the population. After all, paper was of little value in itself.

Growing trust through coverage obligation

In order to strengthen the population's trust in paper money, a so-called coverage obligation was widespread.

In plain language: the issuing banks had to secure the face value of all banknotes in the form of stocks of coins or bars. The holders of paper money should therefore be able to exchange the banknotes at any time.

Such a cover is discussed again and again nowadays in order to curb the fear of the population about a currency devaluation. In the times of the introduction of paper money, this security did not fail and the banknotes experienced increasing acceptance among the population.

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