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Letters of exchange, early predecessors of paper cash instead of coins, first developed by guilds in northwestern Shanxi. By the thirteenth century, paper money had eclipsed coins.

What is paper money?

  • Paper money is the official currency of a nation that is used for transactions including the purchase of goods and services.
  • In order to maintain the flow of cash in accordance with monetary policy, a nation's central bank or treasury often regulates the printing of paper money.
  • Newer versions of paper money frequently include security elements in an effort to hinder counterfeiters' ability to generate unofficial reproductions.

Paper money is referred to as fiat money in the US. This indicates that its only actual worth is as a recognized form of transaction. This was not the case prior to 1971; the Federal Reserve mandated that a specific amount of gold be used to back U.S. banknotes.

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