U.S.-Paper-Money.pdf

U.S. Paper Money

November 2004

Presented by:

Eric Leonard

Past President

Crescent City

Coin Club

What is paper money?

Paper money is a promissory note. Unlike precious metal coins (such as gold or

silver), the paper itself has no intrinsic value. The value of paper money is the

purchasing power commanded by the issuing agency, in this case the United

States federal government.

In fact, the coins we use today are not made of precious metals and thus have no

intrinsic value. Therefore, modern “business strike” coins are nothing more than

symbols of their face value.

Why use paper money?

Paper money has advantages and disadvantages.

Advantages

1) Inexpensive to produce… even the cheapest coins

take valuable metals out of the economy.

2) Convenient to use… more purchasing power can

be in your wallet as paper money versus coin.

Disadvantages

1) Counterfeiting… unauthorized reproduction,

which is a crime.

2) Depreciation… reduced value compared to

other exchange medium such

as goods, coin, or different

paper money.

3) Inflation…over issuance, the

overproduction of paper

money without backing.

How old is paper money?

Paper money was first printed in China during the Ming

Dynasty in the 14 th century. Marco Polo (1254-1324)

brought news of Chinese paper money to Europe. But

European leaders thought that mere promises to pay were

too great a step for economies based on gold and silver

coins.

On the other hand, it was becoming increasingly common

for gold and silver coins to be debased, or made with less

precious metals and/or cheaper metals.

Ming Dynasty note,

circa 1300

As early as the 4 th century, the Roman Empire was minting

degenerate coins. The practice continued and spread until

the bank of Stockholm in Sweden printed the first European

banknote in 1661. Printing a note was cheaper than minting

a coin, and both were nothing more than promises to pay the

bearer in gold or silver upon demand.

Early Swedish bank

note, 1717

Is paper money really made of paper?

Originally, yes. But the better paper was mixed with linen cloth to produce a

high grade paper that was more durable.

Paper in various forms dates back to the ancient Egyptians and their use of

papyrus, a water plant that was dried and pressed together. Later, dried sheep

skin was used, which we know as parchment.

Today, U.S. paper money is ¼ linen and ¾ cotton. If you look closely, you can

see the red and blue fibers of cloth in our paper money.

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