Money simplifies the trading of goods and services, and paper money allows for the inexpensive mass production and regulation of currency. The first known use of paper money occurred in China during the seventh century. Marco Polo famously wrote about the manufacturing and enforcing of paper money after his travels through Asia. Paper money was not used in Europe until the seventeenth century.
Definition of Money
Money is any object used as a medium for exchanging goods and services, which may or may not have any value itself. Modern money typically has very limited inherent value, but is used as a substitute for value.
Paper Money in Asia
Before the seventh century, the Chinese had used grains, silk, and coins as media for exchange. During the Tang Dynasty, copper shortages led to the limited use of paper notes instead of brass coins. Because it had no inherent value, the use of paper money was most successful when enforced by the government and, by the twelfth century, paper notes were entirely issued and regulated by the Chinese government.
Paper Money in Europe
Despite China’s invention of paper money a thousand years before, the western world did not begin using it until 1661, when the Stockholms Bank of Sweden first issued paper notes, which were backed by precious metals, as were most forms of paper money until the twentieth century.
Significance of Paper Money
Money allows people to convert their goods and services into a medium for trade, which can be used to purchase other goods and services. Paper money is easier and cheaper to make than metal coins—and is also much lighter.
Interesting Quote about Paper Money
In 1298, the Italian explorer Marco Polo wrote of his travels to Asia, including an account of the official production of paper money. After explaining how the money was manufactured, he wrote, “With these pieces of paper… [Emperor Kaan] makes them to pass current universally… whithersoever his power and sovereignty extends. And nobody, however important he may think himself, dares to refuse them on pain of death. 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. And all the while they are so light that ten bezants’ worth does not weigh one golden bezant” (The Travels of Marco Polo).