The Chinese were probably the first to invent paper money as we know it. Around 86 BC, Emperor Wu declared that squares of white deerskin, decorated with the designs of a plant, would each be worth 400,000 copper coins.

In Europe, people wanted safe places to keep their coins, so that they would not have to carry them around everywhere. People left their money with goldsmiths, who gave them pieces of paper to show how much gold they had in safekeeping. Eventually, these goldsmiths became bankers, and the pieces of paper became "bank notes." People could trade these bank notes for metal coins.

Do you have a dollar bill? Look at the words at the top: "Federal Reserve Note." Our paper money is still a kind of bank note, and you can still trade it for metal coins. See the line that says "This note is legal tender for all debts, public and private"? This means that our government says you can use this piece of paper to pay for anything, and it will always be worth one dollar.