| What about paper money?
"The first banknotes were produced in China", says John Winchcombe,
Marketing Manager of De La Rue Currency, which prints banknotes for more
than 150 countries. "The first recorded use of a paper banknote was in
1024."
Those early notes were a handwritten promise of payment - in effect an
IOU.
The Bank of England introduced paper notes in 1694. "The economy was
growing fast and there was a need to have a convenient and easy form of
exchanging value and wealth," says John Winchcombe.
Across Europe, the development of paper money was closely linked to the
development of the banking system. "The origin of paper money goes back
to the beginning of Central Banks in the later part of the 17th
Century," says Andrew Bailey. "The point of a Central Bank and the money
it issues is that we guarantee it." Andrew's signature appears on all
Bank of England notes - guaranteeing the money on behalf of the bank.
"Historically, banknotes were linked directly to gold. There was something
called the Gold Standard and, originally, every banknote was backed by
its value in gold", says John Winchcombe. This meant that at any point,
you could exchange your bank note for that amount of gold which it
represented. But within a few decades, cracks appeared in this system as
the world's economy developed - banks just could not hold the amounts of
gold to support the value of money in circulation. "The UK left the gold
standard in 1931, the US abandoned it in 1971." |
