paper money

DEFINITION: The phrase “paper money” has a wide sense and a narrow sense. In both senses, paper money is a form of negotiable instrument that is a species of unconditional promissory note.

ETYMOLOGY: the word “money” derives, via Middle English and Middle French, from the Latin word moneta, meaning “money.”

USAGE: In its narrow sense, “paper money” refers to “banknotes” (or “bills”) that are a form of money that is legally a species of unconditional promissory note.

Bank notes are issued by banks, possess a face value denominated in the currency of the jurisdiction in question, and are payable to the bearer of the note on demand.

The last-named condition distinguishes bank notes from other kinds of unconditional promissory notes, which ordinarily require that a payee be named on the instrument.

In its broad sense, “paper money” refers to any form of paper negotiable instrument or promissory note. An example would be paper receipts and IOUs issued by wholesalers to suppliers to avoid the expense of transporting and storing heavy coins.

Such promissory notes existed long before banknotes. The first paper money, in the wide sense, dates from the Tang Dynasty (618–907 AD) in China—which is not surprising, seeing that the Chinese invented both paper and the printing press.

The Chinese invention filtered into Europe during the Middle Ages. The banks which grew up in the later medieval and Renaissance periods, beginning in northern Italy, made use of very similar promissory notes.

However, the issuance of paper money in the narrow sense of banknotes soon became primarily the prerogative of the central banks of nation states.

Thus, the first true bank notes date mostly from the seventeenth century, when the first central bank of a nation state came into being in Sweden: namely, the Sveriges Riksbank, which was founded in Stockholm in 1668.

From that date until 1971, bank notes were fully convertible into gold. This meant that government banks were required to exchange their bank notes for an equivalent amount of gold.

In 1971, President Richard M. Nixon took the US off of the gold standard. Subsequently, bank notes could no longer be exchanged for gold.

The practical effect of this policy was that one of the most important restraints on government spending was removed.

In the third decade of the twenty-first century, a strong move is afoot to abolish paper money and transition to an all-electronic system of economic exchange.

Is it an accident hat such a system would greatly facilitate the totalitarian control of the populace by government?

Who would have thought that paper money would turn out to be one of the last weapons in the defense of human freedom?