New Currency: How Money changes the World As We Know It

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All physical currencies were physically related to this virtual currency; this instrument also served as credit. The shift toward the use of these receipts as a means of payment took place in the midth century, as the price revolution , when relatively rapid gold inflation, was causing a re-assessment of how money worked. The goldsmith -bankers of London began to give out the receipts as payable to the bearer of the document rather than the original depositor. This meant that the note could be used as currency based on the security of the goldsmith, not the account holder of the goldsmith-banker.

This pivotal shift changed the simple promissory note into an agency for the expansion of the monetary supply itself. As these receipts were increasingly used in the money circulation system, depositors began to ask for multiple receipts to be made out in smaller, fixed denominations for use as money. The receipts soon became a written order to pay the amount to whoever had possession of the note. These notes are credited as the first modern banknotes.

The first short-lived attempt at issuing banknotes by a central bank was in by Stockholms Banco , a predecessor of Sweden's central bank Sveriges Riksbank. Cheap foreign imports of copper had forced the Crown to steadily increase the size of the copper coinage to maintain its value relative to silver.

The heavy weight of the new coins encouraged merchants to deposit it in exchange for receipts. These became banknotes when the manager of the Bank decoupled the rate of note issue from the bank currency reserves. Three years later, the bank went bankrupt, after rapidly increasing the artificial money supply through the large-scale printing of paper money. The modern banknote rests on the assumption that money is determined by a social and legal consensus.

A gold coin's value is simply a reflection of the supply and demand mechanism of a society exchanging goods in a free market, as opposed to stemming from any intrinsic property of the metal. By the late 17th century, this new conceptual outlook helped to stimulate the issue of banknotes. The economist Nicholas Barbon wrote that money "was an imaginary value made by a law for the convenience of exchange.

The first bank to initiate the permanent issue of banknotes was the Bank of England. Established in to raise money for the funding of the war against France , the bank began issuing notes in with the promise to pay the bearer the value of the note on demand. They were initially handwritten to a precise amount and issued on deposit or as a loan. Fully printed notes that did not require the name of the payee and the cashier's signature first appeared in The Scottish economist John Law helped establish banknotes as a formal currency in France, after the wars waged by Louis XIV left the country with a shortage of precious metals for coinage.

In the United States there were early attempts at establishing a central bank in and , but it was only in that the federal government of the United States began to print banknotes. Originally, the banknote was simply a promise to the bearer that they could redeem it for its value in specie, but in the second in a series of Bank Charter Acts established that banknotes would be considered as legal tender during peacetime.

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Until the mid-nineteenth century, commercial banks were able to issue their own banknotes, and notes issued by provincial banking companies were the common form of currency throughout England, outside London. The Act gave the Bank of England an effective monopoly over the note Issue from Generally, a central bank or treasury is solely responsible within a state or currency union for the issue of banknotes.

However, this is not always the case, and historically the paper currency of countries was often handled entirely by private banks. Thus, many different banks or institutions may have issued banknotes in a given country. Commercial banks in the United States had legally issued banknotes before there was a national currency; however, these became subject to government authorization from to In the last of these series, the issuing bank would stamp its name and promise to pay, along with the signatures of its president and cashier on a preprinted note.

By this time, the notes were standardized in appearance and not too different from Federal Reserve Notes. In a small number of countries, private banknote issue continues to this day. For example, by virtue of the complex constitutional setup in the United Kingdom, certain commercial banks in two of the state's four constituent countries Scotland and Northern Ireland continue to print their own banknotes for domestic circulation, even though they are not fiat money or declared in law as legal tender anywhere.

The UK's central bank, the Bank of England , prints notes which are legal tender in England and Wales ; these notes are also usable as money but not legal tender in the rest of the UK see Banknotes of the pound sterling. In the two Special Administrative Regions of the People's Republic of China , arrangements are similar to those in the UK; in Hong Kong, three commercial banks are licensed to issue Hong Kong dollar notes , [40] and in Macau , banknotes of the Macanese pataca are issued by two different commercial banks. As well as commercial issuers, other organizations may have note-issuing powers; for example, until the Singapore dollar was issued by the Board of Commissioners of Currency Singapore , a government agency which was later taken over by the Monetary Authority of Singapore.

As with any printing, there is also a chance for banknotes to have printing errors. Prior to the introduction of banknotes, precious or semi-precious metals minted into coins to certify their substance were widely used as a medium of exchange. The value that people attributed to coins was originally based upon the value of the metal unless they were token issues or had been debased. Banknotes were originally a claim for the coins held by the bank, but due to the ease with which they could be transferred and the confidence that people had in the capacity of the bank to settle the notes in coin if presented, they became a popular means of exchange in their own right.

They now make up a very small proportion of the "money" that people think that they have as demand deposit bank accounts and electronic payments have negated the need to carry notes and coins. Banknotes have a natural advantage over coins in that they are lighter to carry but are also less durable.

Banknotes issued by commercial banks had counterparty risk , meaning that the bank may not be able to make payment when the note was presented. Notes issued by central banks had a theoretical risk when they were backed by gold and silver. Both banknotes and coins are subject to inflation. The durability of coins means that even if metal coins melt in a fire or are submerged under the sea for hundreds of years they still have some value when they are recovered. Gold coins salvaged from shipwrecks retain almost all of their original appearance, but silver coins slowly corrode.

The different disadvantages between coins and banknotes imply that there may be an ongoing role for both forms of bearer money, each being used where its advantages outweigh its disadvantages. The cotton is sometimes mixed with linen , abaca , or other textile fibres.

Generally, the paper used is different from ordinary paper: Unlike most printing and writing paper, banknote paper is infused with polyvinyl alcohol or gelatin, instead of water, to give it extra strength. Early Chinese banknotes were printed on paper made of mulberry bark. Mitsumata Edgeworthia chrysantha and other fibers are used in Japanese banknote paper [48] a kind of Washi. Most banknotes are made using the mould made process in which a watermark and thread is incorporated during the paper forming process.

The thread is a simple looking security component found in most banknotes. It is however often rather complex in construction comprising fluorescent, magnetic, metallic and micro print elements. By combining it with watermarking technology the thread can be made to surface periodically on one side only. This is known as windowed thread and further increases the counterfeit resistance of the banknote paper.

Other related methods include watermarking to reduce the number of corner folds by strengthening this part of the note, coatings to reduce the accumulation of dirt on the note, and plastic windows in the paper that make it very hard to copy. When paper bank notes were first introduced in England in the s, they resulted in a dramatic rise in counterfeiting. The attempts by the Bank of England and the Royal Mint to stamp out currency crime led to new policing strategies, including the increased use of entrapment.

Banknotes may also be overprinted to reflect political changes that occur faster than new currency can be printed. In , Austria produced the Schilling banknote Mozart , which is the first foil application Kinegram to a paper banknote in the history of banknote printing. The application of optical features is now in common use throughout the world.


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Many countries' banknotes now have embedded holograms. These early plastic notes were plagued with issues such as ink wearing off and were discontinued. In , after significant research and development in Australia by the Commonwealth Scientific and Industrial Research Organisation CSIRO and the Reserve Bank of Australia , Australia produced the first polymer banknote made from biaxially-oriented polypropylene plastic , and in , it became the first country to have a full set of circulating polymer banknotes of all denominations completely replacing its paper banknotes.


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In , Bulgaria issued the world's first hybrid paper-polymer banknote. Polymer banknotes were developed to improve durability and prevent counterfeiting through incorporated security features, such as optically variable devices that are extremely difficult to reproduce. Over the years, a number of materials other than paper have been used to print banknotes. This includes various textiles, including silk, and materials such as leather. Silk and other fibers have been commonly used in the manufacture of various banknote papers, intended to provide both additional durability and security.

Crane and Company patented banknote paper with embedded silk threads in and has supplied paper to the United States Treasury since Banknotes printed on pure silk "paper" include "emergency money" Notgeld issues from a number of German towns in during a period of fiscal crisis and hyperinflation. Most notoriously, Bielefeld produced a number of silk, leather, velvet, linen and wood issues. These issues were produced primarily for collectors, rather than for circulation. They are in demand by collectors. Banknotes printed on cloth include a number of Communist Revolutionary issues in China from areas such as Xinjiang , or Sinkiang, in the United Islamic Republic of East Turkestan in Emergency money was also printed in on khaki shirt fabric during the Boer War.

Cotton is the material of the banknotes in the United States. Leather banknotes or coins were issued in a number of sieges , as well as in other times of emergency. During the Russian administration of Alaska , banknotes were printed on sealskin. A number of 19th century issues are known in Germanic and Baltic states, including the places of Dorpat , Pernau , Reval , Werro and Woiseck.

Other issues from were printed on wood, which was also used in Canada in — during Pontiac's Rebellion , and by the Hudson's Bay Company. In , in Bohemia , wooden checkerboard pieces were used as money. Even playing cards were used for currency in France in the early 19th century, and in French Canada from until , the Colony of Louisiana, Dutch Guiana, and in the Isle of Man in the beginning of the 19th century, and again in Germany after World War I. BPS is an endocrine disruptor that is subject to human dermal absorption through handling banknotes. Vertical currency is a type of currency in which the orientation has been changed from the conventional horizontal orientation to a vertical orientation.

Dowling Duncan, a self-touted multidisciplinary design studio, conducted a study in which they determined people tend to handle and deal with money vertically rather than horizontally, especially when the currency is processed through ATM and other money machines. They also note how money transactions are conducted vertically not horizontally. Since , Sri Lanka has unusually printed the reverse of its banknotes vertically.

The series Hong Kong dollar banknotes has the observe is in traditional horizontal layout, while the reverse adopts vertical format. People are not the only economic actors who are required to accept banknotes. In the late 20th century, vending machines were designed to recognize banknotes of the smaller values long after they were designed to recognize coins distinct from slugs. This capability has become inescapable in economies where inflation has not been followed by introduction of progressively larger coin denominations such as the United States, where several attempts to make dollar coins popular in general circulation have largely failed.

The existing infrastructure of such machines presents one of the difficulties in changing the design of these banknotes to make them less counterfeitable, that is, by adding additional features so easily discernible by people that they would immediately reject banknotes of inferior quality, for every machine in the country would have to be updated. In the United States, banknotes last an average of three years until they are no longer fit for circulation, after which they are collected for destruction, usually recycling or shredding.

Banknote bundles are passed through a sorting machine that determines whether a particular note needs to be shredded, or are removed from the supply chain by a human inspector if they are deemed unfit for continued use — for example, if they are mutilated or torn. Counterfeit banknotes are destroyed unless they are needed for evidentiary or forensic purposes. Types of contaminants include: In the US, the nickname "Fed Shreds" refers to paper money which has been shredded after becoming unfit for circulation.

Although these shredded banknotes are generally landfilled, they are sometimes sold in small bags as souvenirs.

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Intelligent banknote neutralisation systems IBNS are security systems which render banknotes unusable by marking them permanently as stolen with a degradation agent. Marked stained banknotes cannot be brought back into circulation easily and can be linked to the crime scene. Today's most used degradation agent is a special security ink which cannot be removed from the banknote easily and not without destroying the banknote itself, but other agents also exist. Today IBNSs are used to protect banknotes in automated teller machines , retail machines, and during cash-in-transit operations.

The technology is based on identifiable banknotes - that could be an RFID chip or a barcode - and connects to a digital security system to verify the validity of the banknote. The company claims that the banknotes are unforgeable and contribute to solve cash-related problems as well as fight crime and terrorism.

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In another note, the DICE benefits cover and solve almost all cash-related issues that are seen by governments to be a motivation for the progressive abolition of cash. In the United States there are many laws that allow the confiscation of cash and other assets from the bearer if there is suspicion that the money came from an illegal activity.

It is then up to the owner of the money to prove where the cash came from at his own expense.

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Many people simply forfeit the money. Banknotes have increasingly been displaced by credit and debit cards and electronic money transfers. Some governments, such as Canada, are considering replacing paper notes and coins with digital currency. Banknote collecting, or Notaphily , is a slowly growing area of numismatics. Although generally not as widespread as coin and stamp collecting , the hobby is slowly expanding.

Prior to the s, currency collecting was a relatively small adjunct to coin collecting, but currency auctions and greater public awareness of paper money have caused more interest in rare banknotes and consequently their increased value. Since Sanjay Relan, of Hong Kong, has held the Guinness world record for collecting banknotes representing different countries. For a short period in , he also held the Guinness world record for collecting coins representing different countries. For years, the mode of collecting banknotes was through a handful of mail order dealers who issued price lists and catalogs.

In the early s, it became more common for rare notes to be sold at various coin and currency shows via auction. The illustrated catalogs and "event nature" of the auction practice seemed to fuel a sharp rise in overall awareness of paper money in the numismatic community. The emergence of currency third party grading services similar to services that grade and "slab", or encapsulate, coins also may have increased collector and investor interest in notes.

Entire advanced collections are often sold at one time, and to this day single auctions can generate millions in gross sales. Today, eBay has surpassed auctions in terms of highest volume of sales of banknotes. This disparity is diminishing as paper money prices continue to rise. A few rare and historical banknotes have sold for more than a million dollars.

There are many different organizations and societies around the world for the hobby, including the International Bank Note Society IBNS , which currently assert to have around 2, members in 90 countries. The universal appeal and instant recognition of bank notes has resulted in a plethora of novelty merchandise that is designed to have the appearance of paper currency.

These items cover nearly every class of product. Cloth material printed with bank note patterns is used for clothing, bed linens, curtains, upholstery and more.

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Acrylic paperweights and even toilet seats with bank notes embedded inside are also common. Items that resemble stacks of bank notes and can be used as a seat or ottoman are also available. Who controls currency — governments or networks of computers? Who controls our payments — technology companies, payment card providers, or banks? Arguably most importantly of all, who controls all the data about our financial transactions — you or them? In the roof space office of a nondescript brick building in east London is an artificial intelligence start-up business with 12 members of staff and lofty ambitions.

Users ask questions about their spending through Facebook Messenger, and Cleo answers. It changed my spending. It changed how I looked at my money. It changed how I behave with my money. He says digital assistants can replace banking apps, finding better deals by analysing the previous 12 months of transaction data, with the business taking a cut from any new switch.

His confidence may be based, in part, on the evidence from China, where Tencent's WeChat app started life as a mobile messaging service but is now a huge business offering an array of financial services. With a customer base that is aged entirely in their 20s and 30s and, as yet, no licence to offer credit, there are significant questions over whether Cleo can match this and achieve the scale needed to meet its ambition.

Mr Hussey-Yeo should know the dangers. He started as a data scientist at payday lender Wonga, just as it was trying to reinvent itself after it became a byword among critics for unethical and lax lending. This instructs banks to open up the payments infrastructure and customer data that they control to third parties, like fintechs.

That information is valuable. For example, lots of businesses would want to know that you spend a lot on petrol so a car is central to your life, or that you tend to dip into an overdraft near the end of every month. So, underlying the rules is a requirement that the consumer must consent to their personal information being shared. He is overseeing the introduction of a set of computer programming rules in the UK, called Application Programming Interfaces APIs , that ensure all these new services and banks to talk to each other. Banks will build their own APIs in the rest of the European Union, but the principle remains the same.

That principle should inspire competition and, according to Mr Hussey-Yeo, shift the balance of power. The future of banking is with software companies, it is not going to be your traditional banks. It is who owns the data and who owns the experience. It is who you — the customer —trust to take financial products from. But who can you trust? Instead, there is a danger, he says, of these consumers being exploited, either through businesses offering a new form of expensive payday loan, or abuse of data alongside other personal information revealed on social media and elsewhere by unscrupulous individuals.

Two billion people around the world do not have a bank account, according to the World Bank. The number is falling, thanks in part to mobile money accounts in Africa.

However, as new services are being developed and new ways of paying invented, there are renewed questions about those left behind. What of those who are confused by QR codes the interactive codes that hold vital information , or who can only pay via their mobile because there is no bank branch network? That is the conundrum tackled by Ezetap, launched in in India, where millions have embraced mobile technology, but where huge swathes of the population only use cash.

Amid a background of movement from a paper-based Indian economy, Ezetap created software that would allow a merchant with a smartphone to accept any type of payment and see that money moved seamlessly into their own bank account. Take this digital transaction a step or two further and you march towards the brain-aching concept of self-regulating digital currencies.

Big investors have bet on Bitcoin, the largest cryptocurrency, and the hundreds of others that have been created. A growing list of retailers is accepting Bitcoins, but paying for your groceries via a cryptocurrency wallet remains a very niche activity. Price volatility and transaction costs have been high, and there remains a level of uncertainty about them in general. So why are cryptocurrencies, the 'mining' of which is pictured, important? Firstly, they are challenging the existing ways of entrepreneurs raising money.


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In theory, these tokens should increase in value as long as others keep investing.

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