Rufus Folorunso Akinyooye - St Clements University

ancient China, it should not be surprising that government paper money began there as well.
He said it emerged when the government had to find an alternative to the physical
transportation of gold collected in taxes from the provinces to the capital Beijing. As a result, in
the mid-eighth century, provincial governments began to set up offices in the Capital selling
paper drafts, which could be collected in gold in the provincial capitals. He said in 811-812, the
central government outlawed the private firms involved in this business and established its
own system of drafts on provincial government called “flying money”. According to Rothbard
the first government paper money in the Western world was issued in the British American
province of Massachusetts in 1690. The province, he said, was accustomed to engaging in
periodic plunder expeditions against the then more prosperous French Quebec. The successful
plunderers would then return to Boston and sell their loot. They were however beaten back
early in 1690 and the soldiers returned to Boston, the provincial capital, empty handed and in
dire need of their pay. To avoid the catastrophe that could follow should the disgruntled
soldiers become unruly, the Massachusetts government tried unsuccessfully to borrow about
four thousand pounds sterling from Boston merchants because of its unfavourable credit rating
at that time.
It therefore decided in December 1690 to print seven thousand pounds in paper notes, and use
them to pay the soldiers with a two-fold pledge that it would redeem the notes in gold or silver
out of tax revenues in a few years, and that absolutely no further paper notes will be issued.
More paper notes were to be issued by the government later and even those given to the
soldiers continued unredeemed for nearly forty years.
Cribb (1999) further disclosed that the origin of the word “dollar” might have come from a
corruption of the word “thalers” which is a shortening of Joachimshtalers. He said during the
15 th century, the discovery of large silver mines in Joachimsthal in Bohemia (modern day
Austria) led to the issue of new, large, silver coins called Joachimshtalers. The silver from this
mine was reportedly exported throughout Europe as “Thalers” in various denominations as
coins soon to be “dollars” in the U.S. According to Cribb (1999) the Swedish Stockholm Bank
began to issue Europe’s first printed paper money in 1661 following a shortage of silver coins.
They were issued in “thalers” of various denominations.
As already mentioned above the gentry and the aristocracy of London had found haven for
their gold wealth in the vaults of the London goldsmiths who gave them receipts to pay
creditors and they were to become the forerunner of modern day cheques. The paper money
idea soon spread to Japan where feudal clans and temples acting as banks began issuing notes
in the 17 th Century. At about the same time printed paper money began to be issued in the
United Kingdom. A Scotsman John Law introduced the paper money idea to France and in
1718 the bank that he had set up in Paris received the French king’s approval to issue notes
valued in silver coin. A Norwegian Jorgen Thor Mohlen issued the first paper money for
circulation in Norway in exchange for coins that he used to fund his businesses. Pope Paul V
established Europe’s first national bank called Bank of the Holy Spirit at Rome in 1605. Its
“scudi” note was first issued for circulation in 1786 during the reign of Pope Pius VI (Cribb
1999).
As could be seen in these beginnings, banks and individuals were the issuers of bank notes in
exchange for the value of metal coins deposited by the individuals. These individuals circulate
the notes for commercial transactions until a holder in due course of any of the notes decided