Who Made the First Money?
As far as anyone knows, the first money was made in China. Emperor Ch’ing Wang, ruler of China from 1125 to 1079 B.C., is credited with having issued the first metal coins. About 1200 A.D., the Chinese began printing the world’s first paper money. The Chinese bills were printed on paper made from mulberry bark.
The paper money was even handier than coins. It was much easier to carry and keep track of than bags of coins. Coins continued to be used for small transactions, and paper for larger transactions, much as we use our money today.
These banknotes, known as “jiaozi”, evolved from promissory notes that had been used since the 7th century. However, they did not displace commodity money, and were used alongside coins.
Banknotes were first issued in Europe by Stockholms Banco in 1661, and were again also used alongside coins. The gold standard, a monetary system where the medium of exchange are paper notes that are convertible into pre-set, fixed quantities of gold, replaced the use of gold coins as currency in the 17th-19th centuries in Europe.
These gold standard notes were made legal tender, and redemption into gold coins was discouraged. By the beginning of the 20th century almost all countries had adopted the gold standard, backing their legal tender notes with fixed amounts of gold.
After World War II and the Bretton Woods Conference, most countries adopted fiat currencies that were fixed to the US dollar. The US dollar was in turn fixed to gold. In 1971 the US government suspended the convertibility of the US dollar to gold.
After this many countries de-pegged their currencies from the US dollar, and most of the world’s currencies became un-backed by anything except the governments’ fiat of legal tender and the ability to convert the money into goods via payment. According to proponents of modern money theory, fiat money is also backed by taxes. By imposing taxes, states create demand for the currency they issue.