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.


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. 



  1. Paper Dealer

    A market maker that buys and sells extremely short-term corporate ...
  2. Commercial Paper

    Commercial paper is an unsecured debt instrument issued typically ...
  3. Tax-Exempt Commercial Paper

    An unsecured short-term loan, usually issued to finance short-term ...
  4. Alston D. Correll

    A former CEO and chairman of Atlanta-based paper and building ...
  5. Two Name Paper

    A nickname assigned to trade paper. Both Trade Acceptances and ...
  6. Soft Paper Report

    A reference to a lack of confidence in a report's facts or general ...
Related Articles
  1. Investing

    An introduction to commercial paper

    Commercial paper is a short-term instrument that can be a viable alternative for retail fixed-income investors looking for a better rate of return.
  2. Investing

    Five Paper Companies Licensed To Print Money

    Here's a sector that significantly outperformed the broader market year to date.
  3. Insights

    How Currency Works

    Currency offers key advantages over economies based on direct trade, including a broader market for sellers' goods and services and transport ease.
  4. Financial Advisor

    Money Market Mayhem: The Reserve Fund Meltdown

    This event serves as a stark reminder to investors about understanding their portfolios.
  5. Investing

    10 Things You Probably Didn't Know About The Money In Your Wallet

    Here are some fun and interesting facts about the money that you use on a day-to-day basis.
  6. Insights

    Understanding How the Federal Reserve Creates Money

    Read about how the Federal Reserve actually targets and creates new money in the economy, and find out why the savings and loans system magnifies this process.
  7. Investing

    What is Fiat Money?

    Fiat money is currency that a government has declared to be legal tender, but is not backed by a physical commodity.
  8. Tech

    Do Cryptocurrencies Have Intrinsic Value? It Depends

    Cryptocurrencies matter in the long run, whether as a store of value or a medium of exchange.
  9. Investing

    7 Facts You Didn't Know About The Greenback

    There's more to that $10 bill in your pocket than you think - read on for some interesting facts about U.S. currency.
  10. Tech

    'Dean of Valuation' Believes Cryptocurrencies Are Replacing Gold

    A professor at NYU's Stern School of Business says digital currencies will compete with fiat currencies.
  1. What are some examples of securities that can be found in a money market fund?

    Learn about examples of securities found in money market accounts. These securities need to be safe, liquid and of short-term ... Read Answer >>
  2. Who decides when to print money in the U.S.?

    Learn who decides to print money in the United States. Many people relate credit creation, which is the Fed's job, with printing ... Read Answer >>
  3. Is there a world currency? If so, what is it?

    There is no such thing as a world currency. However, since World War II, the dominant or reserve currency of the world has ... Read Answer >>
  4. What determines the interest rate in my money market account?

    Placing funds in a money market account may provide a higher interest rate than a savings account due to the underlying securities ... Read Answer >>
Hot Definitions
  1. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  2. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  3. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  4. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  5. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  6. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
Trading Center