Banknote

Song dynasty Jiaozi, the world's earliest paper money.

A Yuan dynasty printing plate and banknote with Chinese words.

The first banknote-type instrument was used in China in the 7th century, during the Tang dynasty (618–907). Merchants would issue what are today called promissory notes in the form of receipts of deposit to wholesalers to avoid using the heavy bulk of copper coinage in large commercial transactions.[13][14][15] Before the use of these notes, the Chinese used coins that were circular, with a rectangular hole in the middle. Coins could be strung together on a rope. Merchants, if they were rich enough, found that the strings were too heavy to carry around easily, especially for large transactions. To solve this problem, coins could be left with a trusted person, with the merchant being given a slip of paper (the receipt) recording how much money they had deposited with that person. When they returned with the paper to that person, their coins would be returned.

True paper money, called "jiaozi", developed from these promissory notes by the 11th century, during the Song dynasty.[20][21] By 960, the Song government was short of copper for striking coins, and issued the first generally circulating notes. These notes were a promise by the ruler to redeem them later for some other object of value, usually specie. The issue of credit notes was often for a limited duration, and at some discount to the promised amount later. The jiaozi did not replace coins but was used alongside them.

The central government soon observed the economic advantages of printing paper money, issuing a monopoly for the issue of these certificates of deposit to several deposit shops.[13] By the early 12th century, the amount of banknotes issued in a single year amounted to an annual rate of 26 million strings of cash coins.[15] By the 1120s the central government started to produce its own state-issued paper money (using woodblock printing).[13]

Even before this point, the Song government was amassing large amounts of paper tribute. It was recorded that each year before 1101, the prefecture of Xin'an (modern Shexian, Anhui) alone would send 1,500,000 sheets of paper in seven different varieties to the capital at Kaifeng.[22] In 1101, the Emperor Huizong of Song decided to lessen the amount of paper taken in the tribute quota, because it was causing detrimental effects and creating heavy burdens on the people of the region.[23] However, the government still needed masses of paper product for the exchange certificates and the state's new issuing of paper money. For the printing of paper money alone, the Song government established several government-run factories in the cities of Huizhou, Chengdu, Hangzhou, and Anqi.[23]

The workforce employed in these paper money factories was quite large; it was recorded in 1175 that the factory at Hangzhou alone employed more than a thousand workers a day.[23] However, the government issues of paper money were not yet nationwide standards of currency at that point; issues of banknotes were limited to regional areas of the empire, and were valid for use only in a designated and temporary limit of three years.[15]

The geographic limitation changed between 1265 and 1274, when the late southern Song government issued a nationwide paper currency standard, which was backed by gold or silver.[15] The range of varying values for these banknotes was perhaps from one string of cash to one hundred at the most.[15] Ever after 1107, the government printed money in no less than six ink colors and printed notes with intricate designs and sometimes even with mixture of a unique fiber in the paper to combat counterfeiting.

The founder of the Yuan dynasty, Kublai Khan, issued paper money known as Jiaochao. The original notes were restricted by area and duration, as in the Song dynasty, but in the later years, facing massive shortages of specie to fund their rule, the paper money began to be issued without restrictions on duration. Venetian merchants were impressed by the fact that the Chinese paper money was guaranteed by the State.

According to a travelogue of a visit to Prague in 960 by Ibrahim ibn Yaqub, small pieces of cloth were used as a means of trade, with these cloths having a set exchange rate versus silver.[24]

Around 1150, the Knights Templar would issue notes to pilgrims. Pilgrims would deposit valuables with a local Templar preceptory before embarking for the Holy Land and receive a document indicating the value of their deposit. They would then use that document upon arrival in the Holy Land to receive funds from the treasury of equal value.[25][26]

Marco Polo described the use of early banknotes in China to Medieval Europe in his book, The Travels of Marco Polo.

In the 13th century, Chinese paper money of Mongol Yuan became known in Europe through the accounts of travelers, such as Marco Polo and William of Rubruck.[16][27] Marco Polo's account of paper money during the Yuan dynasty is the subject of a chapter of his book, The Travels of Marco Polo, titled "How the Great Kaan Causeth the Bark of Trees, Made into Something Like Paper, to Pass for Money All Over his Country".[17]

All these pieces of paper are, issued with as much solemnity and authority as if they were of pure gold or silver... with these pieces of paper, made as I have described, Kublai Khan causes all payments on his own account to be made; and he makes them to pass current universally over all his kingdoms and provinces and territories, and whithersoever his power and sovereignty extends... 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

— Marco Polo, The Travels of Marco Polo

In medieval Italy and Flanders, because of the insecurity and impracticality of transporting large sums of cash over long distances, money traders started using promissory notes. In the beginning these were personally registered, but they soon became a written order to pay the amount to whoever had it in their possession. These notes are seen as a predecessor to regular banknotes by some but are mainly thought of as proto bills of exchange and cheques.[28] The term "bank note" comes from the notes of the bank ("nota di banco") and dates from the 14th century; it originally recognized the right of the holder of the note to collect the precious metal (usually gold or silver) deposited with a banker (via a currency account). In the 14th century, it was used in every part of Europe and in Italian city-state merchants colonies outside of Europe. For international payments, the more efficient and sophisticated bill of exchange ("lettera di cambio"), that is, a promissory note based on a virtual currency account (usually a coin no longer physically existing), was used more often. All physical currencies were physically related to this virtual currency; this instrument also served as credit.

The first paper money in Europe, issued by the Stockholms Banco in 1666.[29]

The shift toward the use of these receipts as a means of payment took place in the mid-17th century, as the price revolution, when relatively rapid gold inflation was causing a re-assessment of how money worked. The goldsmith bankers of London began to give out the receipts as payable to the bearer of the document rather than the original depositor. This meant that the note could be used as currency based on the security of the goldsmith, not the account holder of the goldsmith-banker.[30] The bankers also began issuing a greater value of notes than the total value of their physical reserves in the form of loans, on the assumption that they would not have to redeem all of their issued banknotes at the same time. This was a natural extension of debt-based issuance of split tally sticks used for centuries in places like St. Giles Fair,[31] however done in this way it was able to directly expand the expansion of the supply of circulating money. As these receipts were increasingly used in the money circulation system, depositors began to ask for multiple receipts to be made out in smaller, fixed denominations for use as money. The receipts soon became a written order to pay the amount to whoever had possession of the note. These notes are credited as the first modern banknotes.[28][32]

The first short-lived attempt at issuing banknotes by a central bank was in 1661 by Stockholms Banco, a predecessor of Sweden's central bank Sveriges Riksbank.[33] These replaced the copper-plates being used instead as a means of payment.[34] This banknote issue was brought about by the peculiar circumstances of the Swedish coin supply. Cheap foreign imports of copper had forced the Crown to steadily increase the size of the copper coinage to maintain its value relative to silver. The heavy weight of the new coins encouraged merchants to deposit it in exchange for receipts. These became banknotes when the manager of the bank decoupled the rate of note issue from the bank currency reserves. Three years later, the bank went bankrupt, after rapidly increasing the artificial money supply through the large-scale printing of paper money. A new bank, the Riksens Ständers Bank was established in 1668, but did not issue banknotes until the 19th century.[35]

The sealing of the Bank of England Charter (1694). The bank began the first permanent issue of banknotes a year later.

The modern banknote rests on the assumption that money is determined by a social and legal consensus. A gold coin's value is simply a reflection of the supply and demand mechanism of a society exchanging goods in a free market, as opposed to stemming from any intrinsic property of the metal. By the late 17th century, this new conceptual outlook helped to stimulate the issue of banknotes. The economist Nicholas Barbon wrote that money "was an imaginary value made by a law for the convenience of exchange".[36]

A temporary experiment of banknote issue was carried out by Sir William Phips as the governor of the Province of Massachusetts Bay in 1690 to help fund the war effort against France.[37] The other Thirteen Colonies followed in Massachusetts' wake and began issuing bills of credit, an early form of paper currency distinct from banknotes, to fund military expenditures and for use as a common medium of exchange.[38] By the 1760s, these bills of credit were used in the majority of transactions in the Thirteen Colonies.[39]

Fifty-five-dollar bill in Continental currency; leaf design by Benjamin Franklin, 1779

The first bank to initiate the permanent issue of banknotes was the Bank of England. Established in 1694 to raise money for the funding of the war against France, the bank began issuing notes in 1695 with the promise to pay the bearer the value of the note on demand. They were initially handwritten to a precise amount and issued on deposit or as a loan. There was a gradual move toward the issuance of fixed denomination notes, and by 1745, standardized printed notes ranging from £20 to £1,000 were being printed. Fully printed notes that did not require the name of the payee and the cashier's signature first appeared in 1855.[40]

The Scottish economist John Law helped establish banknotes as a formal currency in France, after the wars waged by Louis XIV left the country with a shortage of precious metals for coinage.

In the United States there were early attempts at establishing a central bank in 1791 and 1816, but it was only in 1862 that the federal government of the United States began to print banknotes.

The Bank of England gained a monopoly over the issue of banknotes with the Bank Charter Act of 1844.

Originally, the banknote was simply a promise to the bearer that they could redeem it for its value in specie, but in 1833 the second in a series of Bank Charter Acts established that banknotes would be considered as legal tender during peacetime.[41]

Until the mid-nineteenth century, commercial banks were able to issue their own banknotes, and notes issued by provincial banking companies were the common form of currency throughout England, outside London.[42] The Bank Charter Act of 1844, which established the modern central bank,[43] restricted authorisation to issue new banknotes to the Bank of England, which would henceforth have sole control of the money supply in 1921. At the same time, the Bank of England was restricted to issue new banknotes only if they were 100% backed by gold or up to £14 million in government debt. The Act gave the Bank of England an effective monopoly over the note issue from 1928.[44][45]

Obverse and reverse of an old American $100 note (1928)

Until recently, most banknotes were made from cotton paper with a weight of 80 to 90 grams per square meter. The cotton is sometimes mixed with linen, abaca, or other textile fibres. Generally, the paper used is different from ordinary paper: it is much more resilient, resists wear and tear (the average life of a paper banknote is two years),[53] and also does not contain the usual agents that make ordinary paper glow slightly under ultraviolet light. Unlike most printing and writing paper, banknote paper is infused with polyvinyl alcohol or gelatin, instead of water, to give it extra strength. Early Chinese banknotes were printed on paper made of mulberry bark. Mitsumata (Edgeworthia chrysantha) and other fibers are used in Japanese banknote paper[54] (a kind of Washi).

Most banknotes are made using the mould made process in which a watermark and thread is incorporated during the paper forming process. The thread is a simple-looking security component found in most banknotes. It is however often rather complex in construction, comprising fluorescent, magnetic, metallic and micro print elements. By combining it with watermarking technology the thread can be made to surface periodically on one side only. This is known as windowed thread and further increases the counterfeit resistance of the banknote paper. This process was invented by Portals, part of the De La Rue group in the UK. Other related methods include watermarking to reduce the number of corner folds by strengthening this part of the note. Varnishing and coatings reduce the accumulation of dirt on the note for longer durability in circulation.

Many currencies, such as the Indonesian rupiah, vary the sizes of their banknotes by denomination. This is done so that they may be told apart through touch alone.

Another security feature is based on windows in the paper which are covered by holographic foils to make it very hard to copy. Such technology is applied as a portrait window for the higher denominations of the Europa series (ES2) of the euro banknotes.[55] Windows are also used with the Hybrid substrate from Giesecke+Devrient which is composed of an inner layer of paper substrate with thin outer layers of plastic film for high durability.[56]

When paper bank notes were first introduced in England, they resulted in a dramatic rise in counterfeiting. The attempts by the Bank of England and the Royal Mint to stamp out currency crime led to new policing strategies, including the increased use of entrapment.[57]

The characteristics of banknotes, their materials and production techniques (as well as their development over history) are topics that are not usually thoroughly examined by historians, even though there are now a number of works detailing how bank notes were actually constructed. This is mostly because historians tend to be more interested in a theoretical understanding of how money worked rather than how it was produced.[58] The first great deterrent against counterfeiting was the death penalty for forgers, but this was not enough to stop the rise of counterfeiting. Over the 18th century, far fewer banknotes were circulating in England compared to the boom of bank notes in the 19th century; because of this, improved note-making techniques were not considered a compelling issue.

In the 18th century, banknotes were produced mainly by copper-plate engraving and printing, and they were single-sided. Note-making technologies remained largely unchanged during the 18th century.[59] The first banknotes were produced by intaglio printing: this involved engraving a copper plate by hand and then covering it in ink to print the bank notes. Only with this technique, at that time, could one force the paper into the lines of the engraving to make suitable banknotes. Another difficulty in counterfeiting banknotes was the paper, as the type of paper used for banknotes was rather different from the paper commercially available at that time. Despite this, some forgers successfully forged notes by dealing with and consulting paper makers, in order to make a similar kind of paper themselves.[60] Furthermore, watermarked paper has also been used since banknotes first appeared; it involved the sewing of a thin wire frame into paper mould. Watermarks for notes were first used in 1697, by Rice Watkins, a Berkshire paper maker.[60] Watermarks and special paper made it harder and more expensive to forge banknotes, since more complex and expensive paper-making machines were needed.

In the early 19th century (the so-called Bank Restriction Period, 1797–1821), the dramatically increased demand for bank notes slowly forced the banks to refine the technologies employed.[60] In 1801, watermarks, which previously were straight lines, became wavy: an idea of William Brewer, a watermark mould maker. This made counterfeiting bank notes harder still, at least in the short term, and in 1803 the number of forged bank notes fell to just 3000, compared to 5000 the previous year.[61] In the same period, bank notes also started to be double-sided and have more complex patterns, and banks asked skilled engravers and artists to help them make their notes harder to counterfeit (an episode labelled by historians as "the search for the inimitable banknote").[62]

The ease with which paper money can be created, by both legitimate authorities and counterfeiters, has led to a temptation in times of crisis such as war or revolution, or merely a spendthrift government, to produce paper money which was not supported by precious metal or other goods; this often led to hyperinflation and a loss of faith in the value of paper money, e.g. the Continental Currency produced by the Continental Congress during the American Revolution, the Assignats produced during the French Revolution, the paper currency produced by the Confederate States of America and the individual states of the Confederate States of America, the financing of World War I by the Central Powers (by 1922 1 gold Austro-Hungarian krone of 1914 was worth 14,400 paper Kronen), the devaluation of the Yugoslav dinar in the 1990s, etc. Banknotes may also be overprinted to reflect political or economic changes that occur faster than new currency can be printed.

In 1988, Austria produced the 5000 Schilling banknote (Mozart), which is the first foil application (Kinegram) to a paper banknote in the history of banknote printing. The application of optical features is now common throughout the world. Many countries' banknotes now have embedded holograms.

A 2000 Romanian lei polymer banknote

In 1983, Costa Rica and Haiti issued the first Tyvek and the Isle of Man issued the first Bradvek polymer (or plastic) banknotes; these were printed by the American Banknote Company and developed by DuPont. These early plastic notes were plagued with issues such as ink wearing off, and they were discontinued. In 1988, after significant research and development in Australia by the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Reserve Bank of Australia, Australia produced the first polymer banknote made from biaxially-oriented polypropylene (plastic), and in 1996, Australia became the first country to have a full set of circulating polymer banknotes of all denominations, completely replacing its paper banknotes. Since then, many other countries have adopted circulating polymer banknotes, including Bangladesh, Brazil, Brunei, Canada, Chile, Guatemala, Dominican Republic, Indonesia, Israel, Malaysia, Mexico, Nepal, New Zealand, Papua New Guinea, Paraguay, Romania, Samoa, Singapore, the Solomon Islands, Thailand, Trinidad and Tobago, the United Kingdom, Uruguay, Vietnam, and Zambia. Other countries have issued commemorative polymer notes, including China, Kuwait, the Northern Bank of Northern Ireland, Taiwan and Hong Kong.[63] Another country indicating plans to issue polymer banknotes is Nigeria. In 2005, Bulgaria issued the world's first hybrid paper-polymer banknote.

Polymer banknotes were developed to improve durability and prevent counterfeiting through incorporated security features, such as optically variable devices that are extremely difficult to reproduce.

Bielefeld Germany 25 Mark 1921. Silk Banknote.[64]

Over the years, a number of materials other than paper have been used to print banknotes. This includes various textiles, including silk, and materials such as leather.[65]

Russian American Company-issued Alaskan parchment scrip (c. 1852)

Silk and other fibers have been commonly used in the manufacture of various banknote papers, intended to provide both additional durability and security. Crane and Company patented banknote paper with embedded silk threads in 1844 and has supplied paper to the United States Treasury since 1879. Banknotes printed on pure silk "paper" include "emergency money" Notgeld issues from a number of German towns in 1923 during a period of fiscal crisis and hyperinflation. Most notoriously, Bielefeld produced a number of silk, leather, velvet, linen and wood issues. These issues were produced primarily for collectors, rather than for circulation. They are in demand by collectors. Banknotes printed on cloth include a number of Communist Revolutionary issues in China from areas such as Xinjiang, or Sinkiang, in the United Islamic Republic of East Turkestan in 1933. Emergency money was also printed in 1902 on khaki shirt fabric during the Boer War.

Cotton fibers together with 25% linen is the material of the banknotes in the United States. Leather banknotes (or coins) were issued in a number of sieges, as well as in other times of emergency. During the Russian administration of Alaska, banknotes were printed on sealskin. A number of 19th century issues are known in Germanic and Estonia, including the places of Dorpat, Pernau, Reval, Werro and Woiseck. In addition to the Bielefeld issues, other German leather Notgeld from 1923 is known from Borna, Osterwieck, Paderborn and Pößneck.

Other issues from 1923 were printed on wood, which was also used in Canada in 1763–1764 during Pontiac's Rebellion, and by the Hudson's Bay Company. In 1848, in Bohemia, wooden checkerboard pieces were used as money.

Even playing cards were used for currency in France in the early 19th century, and in French Canada from 1685 until 1757, the Colony of Louisiana, Dutch Guiana, and in the Isle of Man in the beginning of the 19th century, and again in Germany after World War I.

Most recently, Bisphenol S (BPS), has been frequently used in the production of banknotes worldwide. BPS is an endocrine disruptor that is subject to human dermal absorption through handling banknotes.[66]

Vertical currency is a type of currency in which the orientation has been changed from the conventional horizontal orientation to a vertical orientation. Dowling Duncan, a self-touted multidisciplinary design studio, conducted a study in which they determined people tend to handle and deal with money vertically rather than horizontally, especially when the currency is processed through ATM and other money machines. They also note how money transactions are conducted vertically not horizontally.[67] Bermuda, Cape Verde, Organisation of Eastern Caribbean States, Switzerland, and Venezuela have adopted vertically oriented currency, though Cape Verde has now reverted to horizontal orientation.

Since 1979, Sri Lanka has printed the reverse of its banknotes vertically. Between 1993 and 2013, Brazil has printed banknotes of 5000 and 50000 cruzeiros reais and the first Brazilian real series of banknotes has the obverse in traditional horizontal layout, while the reverse is in vertical format. The 2018 Hong Kong dollar banknotes series too has the obverse in traditional horizontal layout, while the reverse is in vertical format.[68]

Early Chinese banknotes were also vertical, due to the direction of Chinese writing.

The 2018 Canadian $10 bill featuring a portrait of Canadian civil rights pioneer Viola Desmond is presented in a vertical format.[69][70] The Northern Irish £5 and £10 notes issued by Ulster Bank for 2019 were also presented in this way.[71]

For years, the mode of collecting banknotes was through a handful of mail order dealers who issued price lists and catalogs. In the early 1990s, it became more common for rare notes to be sold at various coin and currency shows via auction. The illustrated catalogs and "event nature" of the auction practice seemed to fuel a sharp rise in overall awareness of paper money in the numismatic community. The emergence of currency third party grading services (similar to services that grade and "slab", or encapsulate, coins) also may have increased collector and investor interest in notes. Entire advanced collections are often sold at one time, and to this day single auctions can generate millions in gross sales. Today, eBay has surpassed auctions in terms of highest volume of sales of banknotes.[82][83][84] However, rare banknotes still sell for much less than comparable rare coins. This disparity is diminishing as paper money prices continue to rise. A few rare and historical banknotes have sold for more than a million dollars.[85]

There are many different organizations and societies around the world for the hobby, including the International Bank Note Society (IBNS), which currently assert to have around 2,000 members in 90 countries.[86]

The universal appeal and instant recognition of bank notes has resulted in a plethora of novelty merchandise that is designed to have the appearance of paper currency. These items cover nearly every class of product. Cloth material printed with bank note patterns is used for clothing, bed linens, curtains, upholstery and more. Acrylic paperweights and even toilet seats with bank notes embedded inside are also common. Items that resemble stacks of bank notes and can be used as a seat or ottoman are also available.

Manufacturers of these items must take into consideration when creating these products whether the product could be construed as counterfeiting. Overlapping note images and/or changing the dimensions of the reproduction to be at least 50% smaller or 50% larger than the original are some ways to avoid the risk of being considered a counterfeit. But in cases where realism is the goal, other steps may be necessary. For example, in the stack of bank notes seat mentioned earlier, the decal used to create the product would be considered counterfeit. However, once the decal has been affixed to the resin stack shell and cannot be peeled off, the final product is no longer at risk of being classified as counterfeit, even though the resulting appearance is realistic.