A Brief History of Banknotes

Money

Money is used for buying or selling goods, for measuring value and for storing wealth. The most obvious function of money is as a medium of exchange. That means that we can use money to buy goods such as a pair of shoes, clothes, food products. Also, we use money to buy services such as a haircut or a car repairs. We exchange money for a service or a product. Money does more than allows us to buy things. Most of us have saved money. In fact, if you have money in your purse or pocket right now, you have saved money. Perhaps you are saving money until you get enough to buy a new TV set. So, money serves us as a store of value. In other words, we don’t have to run out and exchange money for goods or services the moment we get it. Instead, we can hold it as a power to buy something in the future. This is simply called saving. Money also serves as a measure of value. We can use the measure of value to gauge incomes, prices, wealth, and things like that.

Money by itself doesn’t do anything for us. We can’t eat it, we can’t wear it. It really has no value other than what can be bought with it. Money by itself does not determine our standard of living. Instead, it is the amount of goods and services over which we have control that determines our standard of living. Money is only the means that each of us uses to acquire those things, which, in turn, determine our standard of living.

The money economy of most societies in the world is based on coins and paper bills of one kind or another. A coin is a piece of metal, usually disc-shaped, which bears lettering, designs or numbers showing its value. Coins are made of metals. They are portable, recognizable, and divisible into larger or smaller units of value. Paper money is issued by governments in the form of bills, which are really ‘promises to pay’. Paper money is easier to handle and much more convenient in the modern world. Cheques and credit cards are being used increasingly.

The first recorded use of paper money was in the 7^th century in China. However, the practice did not become widespread in Europe for nearly a thousand years. In the 16^th century the goldsmith banfers began to accept deposits, make loans and transfer funds. They also gave receipts for cash, that is to say gold coin, deposited with them. These receipts, known as ‘running cash notes’, were made out in the name of the depositor and promised to pay him on demand. Many also carried the words ‘or bearer’ after the name of the depositor, which allowed them to circulate in a limited way.

In 1694 the Bank of England was established in order to raise money for King William’s war against the French. Almost immediately the Bank started to issue notes in return for depositors. Like the goldsmiths’ notes the crucial feature that made Bank of England notes a means of exchange was the promise to pay the bearer the sum of the note on demand.

After the recoinage of 1696 reduced the need for small denomination notes, it was decided not to issue any notes for sums of less than 50 pounds. Since the average income in this period was less than 20 pounds a year, most people went through life without ever coming into a contact with a banknote.

The 18^th century saw the gradual move to fixed denomination notes. From 1725 the Bank was issuing partly printed notes for completion in manuscript. The sign of pound and first digit were printed but other numerals were added by hand, as were the name of the payee, the cashier’s signature, the date and the number. Notes could be for uneven amounts, but the majority was for round sums.

The first fully printed notes were issued in 1855, an event that brought relief to the Bank’s team of cashiers, who no longer had to fill in the name of the payee and sign each note individually.

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