Editing Currency (section)

=== Paper money ===
{{main|Banknote}}
{{refimprove|date=June 2024|1=section}}
In [[History of China|premodern China]], the need for lending and for a medium of exchange that was less physically cumbersome than large numbers of [[copper]] coins led to the introduction of [[paper money]], i.e. [[banknote]]s. Their introduction was a gradual process that lasted from the late [[Tang dynasty]] (618–907) into the [[Song dynasty]] (960–1279). It began as a means for merchants to exchange heavy coinage for [[receipt]]s of deposit issued as [[promissory note]]s by [[wholesaler]]s' shops. These notes were valid for temporary use in a small regional territory. In the 10th century, the [[Song dynasty]] government began to circulate these notes amongst the traders in its [[monopoly|monopolized]] salt industry. The Song government granted several shops the right to issue banknotes, and in the early 12th century the government finally took over these shops to produce state-issued currency. Yet the banknotes issued were still only locally and temporarily valid: it was not until the mid 13th century that a standard and uniform government issue of paper money became an acceptable nationwide currency. The already widespread methods of [[woodblock printing]] and then [[Bi Sheng]]'s [[movable type]] [[printing]] by the 11th century were the impetus for the mass production of paper money in premodern China.

[[File:Jiao zi.jpg|thumb|right|Song dynasty ''Jiaozi,'' the world's earliest paper money]]
At around the same time in the [[Islamic Golden Age|medieval Islamic world]], a vigorous [[monetary economy]] was created during the 7th–12th centuries on the basis of the expanding levels of circulation of a stable high-value currency (the [[dinar]]). Innovations introduced by Muslim economists, traders and merchants include the earliest uses of [[Credit (finance)|credit]],<ref name=Banaji>{{cite journal |last=Banaji |first=Jairus |year=2007 |title=Islam, the Mediterranean and the Rise of Capitalism |journal=Historical Materialism |volume=15 |issue=1 |pages=47–74 |issn=1465-4466 |doi=10.1163/156920607X171591 |oclc=440360743 |url=https://www.scribd.com/doc/14246569/Banaji-Jairus-Islam-The-Mediterranean-and-the-Rise-of-Capitalism |access-date=August 28, 2010 |archive-url=https://web.archive.org/web/20090523015524/http://www.scribd.com/doc/14246569/Banaji-Jairus-Islam-The-Mediterranean-and-the-Rise-of-Capitalism |archive-date=May 23, 2009 |url-status=dead  }}</ref> [[cheque]]s, [[promissory note]]s,<ref name="Medieval Trade in the Mediterranean World: Illustrative Documents">{{cite book|last1=Lopez |first1=Robert Sabatino |author-link1=Roberto Sabatino Lopez |last2=Raymond |first2=Irving Woodworth |last3=Constable |first3=Olivia Remie |title=Medieval trade in the Mediterranean world: Illustrative documents |series=Records of Western civilization.; Records of civilization, sources and studies, no. 52 |year=2001 |orig-year=1955 |publisher=[[Columbia University Press]] |location=New York |url=http://cup.columbia.edu/bookpreview/978-0-231-12356-3/ |isbn=978-0-231-12357-0 |oclc=466877309 |url-status=dead |archive-url=https://web.archive.org/web/20120309144011/http://cup.columbia.edu/bookpreview/978-0-231-12356-3/ |archive-date=March 9, 2012 }}</ref> [[savings account]]s, [[transaction account]]s, [[loan]]ing, [[Trust law|trusts]], [[exchange rate]]s, the transfer of credit and [[debt]],<ref name=Labib>{{cite journal |last=Labib |first=Subhi Y. |date=March 1969 |title=Capitalism in Medieval Islam |journal=The Journal of Economic History |volume=29 |issue=1 |pages=79–86 |issn=0022-0507 |oclc=478662641 |jstor=2115499 |doi=10.1017/S0022050700097837 |s2cid=153962294 }}</ref> and [[banking institution]]s for loans and [[deposit account|deposits]].<ref name=Labib />

In Europe, paper currency was first introduced on a regular basis in [[Sweden]] in 1661 (although [[Washington Irving]] records an earlier emergency use of it, by the Spanish in a siege during the [[Conquest of Granada]]). As [[Sweden]] was rich in copper, many copper coins were in circulation, but its relatively low value necessitated extraordinarily big coins, often weighing several kilograms.

The advantages of paper currency were numerous: it reduced the need to transport gold and silver, which was risky; it facilitated loans of gold or silver at interest, since the underlying [[Hard money (policy)|specie]] (money in the form of gold or silver coins rather than notes) never left the possession of the lender until someone else redeemed the note; and it allowed a division of currency into credit- and specie-backed forms. It enabled the sale of [[investment (macroeconomics)|investment]] in [[joint-stock company|joint-stock companies]] and the redemption of those [[Share (finance)|shares]] in a paper.

But there were also disadvantages. First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more notes than they had specie to back them with. Second, because this increased the money supply, it increased inflationary pressures, a fact observed by [[David Hume]] in the 18th century. Thus paper money would often lead to an inflationary bubble, which could collapse if people began demanding hard money, causing the demand for paper notes to fall to zero. The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a [[standing army]]. For these reasons, paper currency was held in suspicion and hostility in Europe and America. It was also addictive since the speculative profits of trade and capital creation were quite large. Major nations established [[mint (coin)|mints]] to print money and mint coins, and branches of their treasury to collect taxes and hold gold and silver stock.

At that time, both silver and gold were considered a [[legal tender]] and accepted by governments for taxes. However, the [[Gresham's law|instability in the exchange rate]] between the two grew over the course of the 19th century, with the increases both in the supply of these metals, particularly silver, and in trade. The parallel use of both metals is called [[bimetallism]], and the attempt to create a [[Bimetallism|bimetallic]] standard where both gold and silver backed currency remained in circulation occupied the efforts of [[inflation]]ists. Governments at this point could use currency as an instrument of policy, printing paper currency such as the United States [[United States Note|greenback]], to pay for military expenditures. They could also set the terms at which they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount that could be redeemed.

By 1900, most of the industrializing nations were on some form of [[gold standard]], with paper notes and silver coins constituting the circulating medium. Private [[bank]]s and governments across the world followed [[Gresham's law]]: keeping the gold and silver they received but paying out in notes. This did not happen all around the world at the same time, but occurred sporadically, generally in times of war or financial crisis, beginning in the early 20th century and continuing across the world until the late 20th century, when the regime of floating fiat currencies came into force. One of the last countries to break away from the gold standard was the United States in 1971, an action which was known as the [[Nixon shock]]. No country has an enforceable gold standard or [[silver standard]] currency system.