Today, I am told, is the date that the first European banknotes were issued by the Swedish bank, Stockholm Banco, in the year 1661. Banknotes are quite a weird thing, if you think about it, so I thought we might take a look at how we came to accept what is essentially just a piece of paper in place of something that has any intrinsic value. Paper money had been used in China for around eight hundred years. The Ancient Chinese also produced some of the earliest known coins. They were generally round, though there are older coins that are shaped like spades or knives. The coins had a rectangular hole through the middle so they could be strung and worn around the neck. The problem was, if you had a lot of them, they were a bit heavy. So people started leaving their coins with a trustworthy person which was exchanged for a slip of paper stating how many coins had been deposited. These slips of paper could then be used later to retrieve the money. Eventually the notes began to be passed from person to person instead of the coins.
Travellers from Europe such as Marco Polo brought back tales of the strange paper money. In fact in his ‘Travels of Marco Polo’ he devotes a whole chapter to it. He describes how the Emperor, Kublai Khan, had notes made from the bark of mulberry trees, which he had plenty of. He paid for everything with the notes and they were used by all his subjects in place of coins. No one was allowed to refuse the notes, on pain of death. Furthermore, merchants coming to China from abroad, bringing gold, silver, jewels or pearls were allowed to sell to no one but the Emperor. They were paid with his notes, which could be exchanged for anything in his Empire. If there was anyone else left who happened to have any gold, silver, gems or pearls, they could take them to the Royal Mint and get a good price for them, but they were paid in notes made from mulberry bark. So that was how the Emperor ended up with all his empire’s wealth, yet it cost him almost nothing to acquire it. “He hath”, said Polo, “ the Secret of Alchemy in perfection”. The idea of issuing promissory notes travelled to medieval Italy and Flanders and they began to be used as an alternative to transporting cash over long distances, which was both impractical and dangerous.
As in China, the notes that were issued in Sweden were also due to the difficulty of carrying heavy money around. Their problems however, were much bigger. Basically there were two currencies that were both called the daler, but one was made of copper and the other of silver. This was a problem because they were both meant to be worth the same amount. Copper was much cheaper than silver, so the copper coins needed to be bigger. Then suddenly copper got really, really cheap. The coins became enormous, huge slabs of copper weighing several kilograms. The largest denomination, the ten daler weighed almost 20 kilograms, that’s 44 lb. Unsurprisingly, people didn’t much want to carry them around, they wanted to deposit them at the bank. The promissory notes they received in exchange were much easier to use. A note could be put in an envelope and posted whereas even a single coin might require a horse and cart.
Sadly, Stockholm Banco decided it would be okay to print more notes than the value of the copper that they held. That didn’t really work out. They went bankrupt after three years. Swedish banks did not issue paper money again until early in the nineteenth century. The Bank of England began to issue paper notes in exchange for real money in 1695, when it was trying to raise money to rebuild the country’s navy after a particularly disastrous war with France. Eventually, paper money became pretty normal everywhere. Coins made from gold, from silver, from copper, could be often too dangerous, and sometimes massively inconvenient to carry around, so everyone was persuaded to accept little pieces of paper, that are essentially useless until you exchange them for something else. Now, of course, we don’t often have the pieces of paper either, just a small plastic card. Money feels even more imaginary but, unfortunately, our world would grind to a halt if we stopped believing in it.