History of Money: From Banknotes to Credit Cards

The precursor of the introduction of banknotes in Europe is Sweden. Stockholms Banco issued paper money for the first time in Europe. They replaced the copper plates that had been used as a means of payment. Banks issued banknotes at the time and put them into circulation, just as national governments do today. Furthermore, they were responsible for issuing banknotes in England until 1694, while in Scotland the last time a bank issued banknotes was in 1850. In the United States, on the other hand, this practice continued throughout the 19th century. More than 5000 different types of banknotes were issued in the USA. They were printed by many American banks. Only banknotes issued by the largest banks with the best creditworthiness were accepted, while those issued by smaller institutions circulated locally. Banknotes were, at the time, a form of representative money that could be exchanged for gold or silver at a bank. A paradox occurred in which banks issued quantities of banknotes in excess of their gold and silver reserves in deposits. This could have led to the bankruptcy of many financial institutions.

In India, the earliest paper money was issued by the Bank of Hindostan (1770-1832), the General Bank of Bengal and Bihar (1773-1775) and the Bengal Bank (1784-1791). Over time, however, governments became responsible for issuing banknotes. After 1694, the Bank of England was given the exclusive right to issue banknotes. In the United States, the Federal Reserve Bank was given similar powers after its creation in 1913. 

Until 1971, currency in the USA was a form of representative money that was partly backed by gold or silver and convertible into these bullions. It was not until President Richard Nixon introduced a rule stating that the US dollar would not be convertible into gold. The rule introduced by Nixon led to the US dollar losing its backing in gold, becoming a paper which value is determined by social agreement and the government can print it as much as it wants which is the direct cause of inflation. 

At the end of the 20th century, credit and debit cards began to take the lead in making payments worldwide. The first credit card in the USA was a card issued by the Bank of America called “BankAmericard” with a revolving credit function and a limit of $300. It became the prototype for the later Visa payment system. Eight years later, the first version of the Mastercard system appeared on the market. 

In Europe, the first credit card was the one issued by Barclays bank in Great Britain in 1966. Three years later, IBM developed the magnetic stripe, which was implemented in credit cards, becoming the standard adopted around the globe. It is worth knowing that previously, machines would take a credit card imprint and send it to a processing centre where a clerk would enter the credit card account data into a computer system. The magnetic stripe shortened the credit card transaction process to about one minute.

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