Paper money originated in two forms: drafts, which are
receipts for value held on account, and "bills", which were
issued with a promise to convert at a later date.
Money is based on the coming to pre-eminence of some
commodity as payment. The oldest monetary basis was for
agricultural capital: cattle and grain. In Ancient
Mesopotamia, drafts were issued against stored grain as a
unit of account. A "drachma" was a weight of grain. Japan's
feudal system was based on rice per year Ė koku.
At the same time, legal codes enforced the payment for
injury in a standardized form, usually in precious metals.
The development of money then comes from the role of
agricultural capital and precious metals having a privileged
place in the economy.
Such drafts were used for giro systems of banking as early
as Ptolemaic Egypt in the first century BC.
The perception of banknotes as money has evolved over time.
Originally, money was based on precious metals. Banknotes
were seen as essentially an I.O.U. or promissory note: a
promise to pay someone money, but not actual money. As
banknotes became more widely used, they became more accepted
as equivalent to precious metal. With the gradual removal of
precious metals from the monetary system, banknotes evolved
to represent fiat money.
Generally, a central bank or treasury is solely responsible
within a state or currency union for the issue of banknotes.
Historically, many different banks or institutions may have
issued banknotes in a country. By virtue of the complex
constitutional setup in the United Kingdom, two of the
union's four constituent countries (Scotland and Northern
Ireland) continue to print their own banknotes for domestic
circulation, with the UK's central bank (the Bank of
England) printing notes which are legal tender in England
and Wales, and are also usable as money in the rest of the
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