Before paper money, people paid for goods with coins made gold, silver, or copper. Coins were heavy, for merchants who traveled long . In China, during the Tang dynasty, merchants began leaving their coins trusted agents and paper receipts . By the eleventh , the Song government was official paper money, the in the world to so.

A banknote is only a piece of printed paper or plastic, yet people willingly exchange goods and hours of work for it. Why?

For much of history, paper money could be exchanged for a fixed amount of gold or silver held by the government. Under this system, known as a commodity standard, people trusted paper money because it represented something valuable. The United States, for example, kept the dollar officially linked to gold in international payments until 1971.

Today, nearly all national currencies are fiat money. Their value does not come from any metal but from the trust that people place in the government and central bank that issue them, and from the fact that governments accept the currency for taxes. As long as people expect others to accept the money tomorrow, they will accept it today.

This trust can be lost. When governments print too much money, prices can rise extremely quickly, a situation called hyperinflation. In Zimbabwe in 2008, prices at one point were doubling about every day, and the country soon stopped using its own currency. Such cases show that money ultimately depends on confidence.