paper money

noun
Updated on: 13 Oct 2017

Definition of paper money

1 :money consisting of government notes and banknotes

First Known Use of paper money

1691


Financial Definition of PAPER MONEY

paper money

What It Is

Paper money is a medium of exchange for goods or services within an economy. It is printed on paper, rather than in coin form.

How It Works

Paper notes are the most generally accepted forms of paper money. In most cases, each country in the world has its own paper money, but in many cases several countries use the same  money (such as the Euro or the U.S. dollar). A country's government designs and manufactures that country's paper money.

Some paper money is fiat money, meaning that it has no intrinsic value. That is, the paper used to create the money is not worth very much in terms of its value as a raw material. Most paper money is fiat money, and its value comes from what it represents rather than what it is. Before 1971, the U.S. dollar was not fiat money -- it was backed by a corresponding amount of gold held with the Federal Reserve.

Why It Matters

Most paper money only has value because people want it. This idea is what made beaver pelts, shells, peppercorns, tulip bulbs and other things into money at various points in history. However, when the demand (or fashion) faded for some of these goods (or more people found they really needed corn instead of beaver pelts), these systems became cumbersome. Paper money solves this problem because it is exchangeable for any good or service that people want (rather than just beaver pelts).

This isn't to say that paper is the only form of viable money today. Quite often, companies use shares of their own stock as money to acquire other companies, and anybody who has ever watched a crime show knows that cigarettes can buy a lot in prison.


PAPER MONEY Defined for English Language Learners

paper money

noun

Definition of paper money for English Language Learners

  • : money that is made of paper : money in the form of bills instead of coins


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