The Chinese were the first to develop paper money. Numismatists regard Jiaozi as the first paper money in history – it was a form of banknote which appeared around the 10th century in China during Song Dynasty.

It  began with receipts of deposits of coin currency. Chinese ‘cash’ coinage was in very small denominations, so it was highly inadequate for large commercial transactions.  Due to that merchants deposited their coinage at one of  small number of government-authorized deposit shops and use their receipts to trade more conveniently.

The world’s first paper money, Jiao Zi.

Government had soon recognized the potential of paper money : seeing that this method was quite efficient, the government began issuing the notes as a legal currency for trade. The government used special colors from different plants and fibers and stamped notes with multiple banknote seals in order to discourage counterfeiting.

Marco Polo was fascinated by the innovative idea of government-backed currency, so he introduced the paper money when he was back in Europe. He was amaised byt he fact  that while the alchemists had struggled  for centuries to turn base metals into gold, the Chinese emperors had very simply turned paper into money.  It is hardly surprising that it took a few more centuries before paper money was introduced in Europe: Europe's earliest modern-style banknotes were introduced in Sweden by the Bank of Stockholm in the 17th century.