In China, the transition from coins to that of paper money happened in 700 B.C. The Silk Road travel of Marco Polo, a Venetian explorer, and a merchant, brought him to China in A.D. 1271. By then, the Chinese emperor had paper money in different denominations. In Europe, until the 16th century, there were regions that were using metal coins as the only currency. The acquisition of territories from conquering these provided precious metal resources of silver and gold. These precious metals were minted to create more coins.
Paper banknotes
The banking industry used paper banknotes so that their clients could use these instead of carrying metal coins. These banknotes may be brought to the bank and the face value may be exchanged for metal coins made from silver or gold. These banknotes were like a currency that was issued by those banking institutions. Now, in most countries, its government is the one issuing currency in the form of banknotes and coins, which can be used as a payment method for purchasing goods and services.
Counterfeit money
The Chinese paper money had an inscription that served as a warning that counterfeiters shall be decapitated. Throughout history, counterfeiting money had happened to be able to make a fraudulent payment transaction. To prevent coinage from being counterfeited, these were minted. Fake money is still a concern up to now as you will notice that there are those small machines that are used in many places to check if the money is real or not.
IOUs as currency
The first European governments paper currency was issued by North American colonial governments. This happened because the shipments between the two places took a long time and the colonies would often run out of cash as their operations expanded. So, instead of bartering, the North American colonial governments issued IOUs. These were traded like a currency with the first instance in 1685 in Canada, which was then a colony of France. Instead of being paid with French coins, the soldiers were given playing cards that were as good as currency when making a payment transaction in that region.
Increase in trade
Europe experienced an increase in trade because of its use of paper money. The ruling class and the banks began buying other nations’ currencies then created the very first currency market. Note that the stability of a government or a monarch and the ability to trade of a country was based on their currency value. That brought about the currency wars which was a competition between the various countries. The point of the currency wars was to change the value of the enemy country. By driving up the currency of the competition, their goods became expensive. By bring it down, there was less purchasing power and it can even eliminate the currency completely.
Currency exchange
Money has always been centralized in one country. There is no one currency that can be used anywhere in the world. Though there are commodities such as gold that has value in all countries, it is not a form of money but a precious metal. However, because of online payments, it is possible to exchange the popular currency like USD easily into the local currency.