The oldest existing bank note came from 14th Century China- a 1000 cash note, 225 by 340 mm with a pile of coins depicted front and centre.
However, paper money can be traced back to 7th Century China during the Song Dynasty when paper currency was used as temporary ‘cash’ to tackle the copper shortage. These original banknotes were held with the intention that they could be traded at any time to ‘real’ money- coinage.
It took 300 years after Marco Polo returned from China with stories of paper money, for the Europeans to adopt the novel idea. However, it had an interesting beginning. It began first (much like in China) as emergency money to substitute ‘real’ money.
It wasn’t until the 17th Century that banknotes went into proper European production.T he first European banknote was printed in Sweden, thanks to Johan Palmstruch who printed his first ‘Kreditivsedlar’ (credit paper) in 1661. However, when the bank printed too many notes- Palmstruch was imprisoned for damages- making the Stockholms Banco-Notes rare collector’s items.
Still during the 17th Century- the battle over control over England’s money system was coming to a head. In the end- favour fell toward the idea of an independent credit institution and the Bank of England was founded in 1694. The Bank of England printed "Goldsmithnotes" as promissory notes from English goldsmiths for account deposits. The state received a loan in exchange for the right to print banknotes. In time the Bank of England developed into the most influential bank of issue bank in the world.
Only one year later, the Bank of Scotland was founded and wielded a powerful monopoly over Scottish banknotes until 1717. Around the same time, Norway experienced the circulation of banknotes at the hands of Thør Møhlen- but the public rejected the idea, turning their notes in for exchange almost immediately.
Under Louis XIV-France also began printing paper money. Paper money was still seen as an uncertainty- and as such, the other European states waited until the late 19th Century to jump on the bandwagon.
Information (History of P. M.) from http://www.moneymuseum.com