Which country was the first to use paper money as medium of exchange?

Necessity, as they say, is the mother of invention – and so it was in the case of paper currency. The idea of using paper instead of coins probably occurred to the brainy Chinese in AD 812.

The usage of such currency became quite widespread during the Sung Dynasty. (See photo.) It seems that the invention came about to prevent theft. When members of the Imperial Court were regularly bringing bags of money to the emperor’s treasury their horses were weighed down with all the coins, so they were easy targets for bandits lying in wait. They couldn’t gallop away from an ambush. Introduction of paper money solved that problem. It was as light as the paper it was printed on. The emperor’s horsemen carrying paper money could easily gallop away at high speed at the first sign of trouble. Later, the Chinese began the printing of multicolor currency notes with a blue background, a circle design in vermilion and notations in black. This complexity of printing, together with specially manufactured paper, made forgery difficult.

More reading:
Banknote (Wikipedia)
Currency (Wikipedia)

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