David Pearson, age 10, of Gastonia, N.C., for his question:
WHEN WAS PAPER MONEY FIRST USED?
Before money came into use, people purchased things with a barter system. If a man was a good fisherman, he would trade some extra fish for clothing or other items his neighbor made. Barter works well when people do not need or use a wide variety of goods. Primitive tribes in many parts of the world still use the barter system today.
Money first came into use when people started exchanging objects that everyone valued for items that people wanted. The ancient Chinese in 1100 B.C. had tool shaped money of metal which was used for exchange in barter.
Gold and silver, because they were scarce, soon became the material used as money.
The world's first paper money was probably made in China. Marco Polo, the Italian adventurer, saw it being used there in the late A.D. 1200s. The paper money had little value of its own but was used as an exchange for valuable metals.
The paper money we use today came from a custom that started in England during the 1600s. People then stored gold and other valuables in vaults of goldsmiths. The goldsmiths gave written receipts. Businesses accepted the receipts because they could recover the valuables or gold from the goldsmiths.
After 1650, the use of paper money increased with the rise of national banks. The Bank of Sweden, founded in 1656, started printing bank notes which were issued to persons who either deposited money in the bank or borrowed money from it.
Paper money was used for the first time in North America in 1685. The money was in the form of playing cards which were used in the Canadian colonies.
Each card was marked with a certain value and signed by the French colonial governor. The French colonial authorities issued this unusual money because of a shortage of French currency. The cards could be exchanged for money. The cards were widely accepted and were issued for more than 70 years.
Paper money was first issued in the American colonies during the late 1600s.
By the 1750s, the colonies had much more paper money than they had gold or silver to exchange for it. As a result, many persons found that the notes were worth far less than the value printed on them.
During the early 1800s, American banks issued large amounts of paper notes to borrowers. Then in 1861, the U.S. Department of the Treasury issued the first United States notes, called greenbacks.
The National Bank Acts of 1863 and 1864 set up a system of national banks. The national banks had the power to issue bank notes backed by government bonds.