Hi Girls, It’s Lily again, with another FLL (Financial Literacy Lesson). Last time we talked about how people stopped trading things like grain and animal skins with each other and started to use gold and silver coins as money. Since gold and silver were precious metals and could be weighed, everyone could agree on what they were worth. But at some point, even coins became too heavy to lug around (I mean – think about how heavy a big bag of pennies is – and it might only be worth a couple of dollars.) So at some point people realized they needed a better system. Since there was so much gold circulating (or flowing around) people began to leave their money in a central place for safekeeping. Often they would leave their gold coins with a goldsmith. The goldsmith would give them a piece of paper showing how much money had been left (or deposited) with him. The goldsmith promised to keep the gold safe, and of course, when someone came back with the piece of paper, to give the money back! So these little notes were almost as good as gold!
In the 1660s, in Europe, more official banks started – these were safe places were people could leave their money – gold – and in return they would get a bank note that they could use to exchange or redeem for the money. Each bank issued it’s own notes, but since everyone knew that the paper note was backed by real gold in the bank, people began to accept the paper notes as currency, instead of just the coins.
Of course it got a bit confusing if every bank issued it’s own paper money and eventually the government’s national bank started issuing the paper notes, which were redeemable for gold. Backed by this guarantee and because paper money was a lot lighter to carry than a purse full of gold coins, people began to feel just as comfortable using paper money.
Trivia Question – Do you know in what country the first bank note was issued? Tip – there’s a hint in the picture!
I’ll give you the answer in the next post – but try to guess below!