IELTS Reading Practice: [7.0] The Origins of Paper Money

[7.0] The Origins of Paper Money

Paper money, as we know it today, has a fascinating history that dates back over a thousand years. While coins were the dominant form of currency in most early economies, carrying large amounts of metal was often impractical. The first recorded use of paper currency appeared in China during the Tang Dynasty (7th century), but widespread issuance began under the Song Dynasty in the 11th century. These notes, known as "jiaozi," were initially backed by the government and exchangeable for precious metals.

European adoption of paper money came much later. In the 17th century, Sweden’s Stockholms Banco issued the first European banknotes, followed by the Bank of England in 1694. Governments quickly recognized the advantages of paper money—it was lighter, easier to transport, and facilitated trade. However, trust in such currency depended heavily on the stability of the issuing authority.

Today, most currencies are no longer backed by physical commodities like gold or silver. Instead, they derive their value from public confidence and government policies, a system known as fiat currency. This transition has changed global finance and the way economies function.

Questions:

1. What was the primary reason for the early adoption of paper money in China?

A. It was more durable than metal coins.
B. It was easier to carry than metal currency.
C. It allowed rulers to control the economy.
D. It was the only form of currency available at the time.

2. When did paper money first appear in Europe?

A. 11th century
B. 14th century
C. 17th century
D. 19th century

3. According to the passage, what is the main factor determining the value of modern paper money?

A. The availability of gold reserves
B. The amount of metal backing it
C. Public confidence and government policies
D. The physical durability of the currency

Answers:

1. B - The passage states that carrying metal coins was impractical, which led to the adoption of paper money.

2. C - Paper money first appeared in Europe in the 17th century, as mentioned in the passage.

3. C - The passage explains that modern paper money is based on public confidence and government policies, known as fiat currency.

Key Vocabulary:

Impractical – Not easy to carry out or use effectively.

Issuance – The act of officially putting something, such as currency, into circulation.

Facilitate – To make a process easier.

Stability – The condition of being steady and secure.

Fiat currency – Money that has value because a government maintains its worth, rather than being backed by physical commodities.