Paper money – Issuers, functions and procedures

Banknotes are an everyday means of payment today, they are part of modern life. They are issued by central banks and the acceptance of notes for payments is guaranteed by law. However, this development only began in the late 19th century.

The first banknotes were issued by states. They were not cash, but more like a kind of security. They replaced the existing cash, i.e. coins, for transactions in trade and commerce. You might even call it a store of value: banknotes preserved and secured values that could be "liquidated" again and exchanged for coins if necessary.

The purpose of paper money was expanded in the 19th century. Banknotes increasingly played a role in cash transactions. Industrialisation and urbanisation triggered a higher demand for cash, which could no longer be sufficiently met by coins. Paper money was now issued less and less by governments themselves, but by private issuing banks licensed by governments.

Central banks were established worldwide at the beginning of the 20th century. They controlled a state's monetary system centrally on its behalf. Banknotes became increasingly important and, with their establishment as legal tender, they eventually became the main means of payment in cash transactions.