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According to this handy historical timeline from PBS, paper money was introduced by the Chinese in 806 A.D. The reason? The country was going through a severe copper shortage. The Chinese government abandoned paper money in 1455, and notes appeared in Europe and America for the first time in the mid-1600s. It was another hundred years before paper money became common. Since it wasn't inherently valuable, paper currency raised a fundamental question about money: What exactly was it worth? One option was to make paper currency redeemable for something of value, like gold or silver. Another was for a bank to print money, and guarantee it. The first U.S. paper
currency was printed in order to finance the Revolutionary War, but since "Continentals" weren't tied to the price of gold or silver, they proved useless. Loans from the French were responsible for most of the war funding. It wasn't until 1816 with the introduction of the gold standard in England that paper currency was assigned a discrete value. The United States didn't sign on to the gold standard until 1900. (Greenbacks, printed in 1860 to fund the Civil War were based on credit and of dubious value.) President Nixon abandoned the gold standard in 1971, and we've been living in a "floating
currency" world ever since.
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