It is difficult to determine the exact hour of birth of paper money. However, its origins may also be in Italy. Cheques and receipts for the possession of cash, i.e. gold or silver coins, were issued at tables and banks to finance crusades. Hence the term “banks”.
The next known station was in Spain in 1483. There paper money was printed for the first time, because a lack of “real” coins prevailed. Here already a typical characteristic of paper money is reflected, which was often used to expand the money supply. In Italy as well as in Spain war was the triggering factor to reprint large sums of money.
The first cryptosoft money
The new form of cryptosoft money spread over the coming centuries. The first bank to use paper money as its standard throughout the country was the Bank of Amsterdam in 1609. The form of money that emerged at that time was called book money. Book money refers to a claim against the bank that the amount of money recorded in books at that time can be exchanged for gold or silver coins at any time.
Book money is also the predominant form of money in our time. The electronic money on our current accounts is also called book money or giral money and describes our claim against the bank for the payment of cash, the actual, legally stipulated means of payment. However, in today’s world, cash no longer refers to gold coins, but to euro notes printed by the central bank.
The expansion of the money supply
Book money is nowadays also called “sight deposits”. This is because you could see your gold or silver coins at any time. However, when the banks discovered that people were increasingly swapping their book money for their gold or silver coins, they began to gradually loosen the precious metal cover. As long as not all people wanted to exchange their paper money at the same time, it was enough to actually own only about 10 percent of the money granted as loans in gold. The only concern would be what we would call a “run on the bank” today – if everyone or an above-average number of people withdrew their gold at the same time.
European history in a nutshell: USA from 1880 to 1971
From 1880 to 1971 the USA experienced what happened in Europe over centuries. While in 1880 the US dollar was still completely backed with gold and the bank also received gold for the presentation of a US dollar, this standard was gradually softened over the coming centuries. The First World War was followed by a gold exchange standard and the Second World War by the Bretton Woods Agreement. According to this, 35 US dollars was worth one ounce of gold. The USA held the world’s largest gold reserves and all other currencies were indirectly backed by gold via the US dollar. However, when the French wanted to withdraw their gold deposited in the USA in 1971, the system collapsed; either the USA did not have the necessary gold or they simply did not want to release it.