The history of money
As we have seen, money is basically a method of exchange, and coins and notes are just items of exchange. Tiny tools, axes and knives were used as items of exchange in China in the 10th century BC. Coins have been found in Lydia, now Turkey, dating from the 6th century BC. These quickly spread throughout the trading world as convenient items for barter and exchange.
Early coins were actually made of silver and copper and the metals were worth the value of the coin. In Athens in the 6th century BC there were silver coins and in China in the 4th century, copper coins were used.
These valuable coins had their disadvantages as people kept filing the sides for the precious metals! To stop people doing this, governments used debased metals. Milled edges were introduced in Europe in the 17th century for the same reason, to stop people taking bits off the edge of the coin.
Paper money was introduced in China in the 9th century but didn't appear in Europe until the 16th century.
Paper money was issued as a promise note against deposits of gold, silver or money held in the bank.
If you look at a British bank note today, you'll see it still says:
I promise to pay the bearer on demand the sum of twenty pounds.
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