Paper Money

What is 'Paper Money'

Paper money is a country's official, paper currency that is circulated for transaction-related purposes of goods and services. The printing of paper money is typically regulated by a country's central bank/treasury in order to keep the flow of funds in line with monetary policy.

Paper money tends to be updated with new versions that contain security features that seek to make it more difficult for counterfeiters to create illegal copies.

BREAKING DOWN 'Paper Money'

The first recorded use of paper money was believed to be in China during the 7th century A.D. as a means of reducing the need to carry heavy and cumbersome strings of metallic coins to conduct transactions. Similar to making a deposit at a modern bank, individuals would transfer their coins to a trustworthy party and then receive a note denoting how much money they had deposited. The note could then be redeemed for currency at a later date.

In the U.S., paper money is considered fiat money in that it has no actual money, it's just an accepted medium of exchange. However, before 1971, this was not the case as U.S. banknotes were backed by a certain amount of gold as dictated by the Federal Reserve. U.S. paper notes are the official currency in a number of countries and areas outside the U.S. such as Puerto Rico, Ecuador, Republic of El Salvador, and the Virgin Islands. (Further reading: Countries That Use The U.S. Dollar)

The euro is another currency used in multiple countries. As of 2017, 19 of the 28 member states in the European Union (EU) use the euro as its official currency. 

While paper money it is the most accepted medium of exchange, companies often issue stock in their own company to purchase other companies and to reward its staff, which is the next closest thing to paper money as these shares can be exchanged on the open market for cash.