With the formation of States, coins were created as tools for
the exchange of goods and services, as well as for the payment of taxes. In
modern economies coins have been accompanied by banknotes, which are easier and
cheaper to produce and use. Banknotes were introduced for the first time in 806
AD in China. People who had precious coins and metals
deposited them with the banks, for their preservation and protection from
thieves, and the banks gave a receipt, a bank-note. In Europe, the first
account about banknotes was made by Marco Polo and the first banknotes appeared
in 1661 in Sweden. In 1694, Norman Montagu replaced commercial banknotes with
national banknotes by grouping the banks that issued banknotes in a private
institution, the Bank of England, with long-term banking privileges. The Bank
of England gave banknotes in exchange for gold and applied an interest to cover
the costs of the deposits and the security of gold. Banknotes were perceived as
gold substitutes, since the conversion to gold was certain.
The Vital Needs Theory - page 76