When did paper money begin in Europe?

 Europeans did not get involved with paper currency until well into the 17th Century. As a product of the Reformation there began the widespread accumulation of wealth, and starting after 1660, some people began to look for places of safekeeping. The practice started by taking one's gold to a goldsmith and paying him a fee to keep it safe. The goldsmith in turn would issue the owner of the gold a receipt, a small slip of paper promising to return his gold upon demand. The process was the same as baggage checking today. When the holders of these receipts realized that others in the community would readily accept them as payment for goods and services, paper money was born. Eventually the goldsmith discovered that few people were actually bringing their cash receipts back to him to exchange them for the precious metals which they represented. The craftier goldsmith would print up extra receipts for gold that he in fact had not received, then loan those receipts out into the community at interest. By learning how to create and loan unbacked receipts in excess of the gold he actually kept on hand, and not "get caught short", the goldsmith of old became the world's first banker. Their fraudulent actions served as the model for the "fractional reserve" banking system. By the late 18th century it was common practice for bankers to print four times as many paper receipts as they had gold deposits.

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