Currency Issuance

In most cases, currency issuance is managed and monitored by a country’s central bank, which is also referred to as a monetary authority. In most western countries, the monetary authority is independent from the government. In other countries, the central bank’s governor is appointed by the government.

Money, i.e. banknotes and coins, has a long history as a means of exchange. At first, the value of the money came from the commodity out of which it was produced, usually some precious metal like gold, silver or copper.

The economy of the Sumer civilization was based on commodity money. The Sumerians, for instance, used silver bars of fixed weight as a medium of exchange and some centuries later, the Egyptians used gold bars to trade with other peoples. Ancient merchants must have found it extremely cumbersome and, no doubt, risky to carry around bulky loads of gold and silver bars and so, the coin came into use around the eleventh century BC. The first coins were made of scraps of some precious metal, and their value depended on their weight and the cost of the metal they were made of. Initially, the coins in the ancient world were hand-struck but towards 1500, the Italians devised mills that produced blank, round metal disks and screw presses for impressing designs onto them, most commonly state symbols or portraits of monarchs.

Today, coins are produced in mints, which are usually controlled by the central banks. Mints produce coins for circulation in the country, as well as orders, medals, honorary insignias, and badges.

But some commodities were so precious that their value was equivalents to hundreds of copper coins, which again created some obstacles to free trade. To solve this problem, the Chinese merchants came up with a revolutionary idea – in order to travel lighter and faster, they used to leave their strings of coins with a confidant and were given a written statement of the amount of coins they have left with this person. The first banknotes were made of leather.

The first paper money in Europe appeared in the Netherlands. In 1547, the Spanish troops besieged the town of Leiden, and the starving population boiled and ate the stocks of leather used to make banknotes. To create currency, the authorities ripped off the covers of the prayer books, cut them into planchets and imprinted them with nominal value and state symbols. If the Italians are credited for introducing coinage in Europe, Sweden can rightfully be named the cradle of the paper money in Europe. The first watermark-protected Swedish banknotes were called Palmstruchers, after Johan Palmstruch, who started the bank of Stockholm in 1657. These banknotes were released in 1666 and were made of thick, handmade paper.

At the time the Swedes were sporting on their new banknotes, London was struggling with the great fire and its disastrous aftermath, but the British were soon to catch up in the currency race, as they adopted the gold standard in 1819. The gold standard practically meant that the country’s paper money were freely convertible into a pre-set amount of gold. To prevent devaluation of their currencies, many European countries adopted the gold standard towards 1870s. Economists usually define the period between 1880 and 1914 as the golden age of the gold standard, characterized by rapid economic growth and active trading in goods and capitals.

As of South Eastern Europe, the first Bulgarian banknotes were printed in 1885 in St. Petersburg, Russia. During the 1920s, the banknotes were issued in London and New York; in the years of WW II the Lev was printed out in Germany and during the communist era (1951-1990) – in the USSR. After the fall of communism, paper money was again printed in Germany until 1999, when the national bank established its own printing works.

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