Paper money may be grouped under three general heads - representative, convertible or fiduciary, and inconvertible or fiat money. From the standpoint of the authority issuing it, paper money is divided into government currency and bank currency. In the leading European countries all paper money is issued by the banks; in the United States it is issued both by banks and by the Government. Our national bank notes and also the recently authorized Federal reserve notes are in effect obligations of the Government. Sometimes corporations and even individuals have issued notes intended to serve as money, and in some instances these have gained a considerable range and volume of circulation, but such cases are exceptional.

Representative paper money is issued against the specific deposit of an equal sum of gold or silver held in trust in a public depository for its redemption. Our gold and silver certificates are of this nature; they are really receipts, not unlike warehouse receipts, certifying that a certain sum of money in gold or silver, as the case may be, has been deposited in the United States Treasury, payable on demand to the bearer of the certificate. These notes are more convenient to handle than the coin; they take up less room for storing; they are less expensive to ship; and they save the wear and tear on the coins. This latter saving is offset to some extent by the expense of printing new notes to replace those worn out.

Cold certificates were first authorized in 1863 against deposits of gold coin and bullion. It was not intended that they should be used as "pocket money" and the smallest denomination was $20. In 1907 provision was made for the issue of $10 gold certificates. When the coinage of standard silver dollars was resumed in 1878, it was found that, owing to their inconvenient size and weight, these coins would not circulate freely, and so the plan of issuing certificates against them was tried. After the passage of the act of 1886 authorizing the issue of the smaller denominations of $1, $2, and $5, silver certificates largely displaced the silver dollars which they represent. Some authorities question the wisdom of retaining the silver dollars in our monetary system, but as long as they are retained it is clearly an advantage to substitute the certificates for them.