In ancient China coins were rectangular with a hole in the middle. Several coins could be strung together on a rope. Merchants in China, if they became rich enough, found that their strings of coins were too heavy to carry around easily. To solve this problem, coins were often left with a trustworthy person, and the merchant was given a slip of paper recording how much money he had with that person. If he showed the paper to that person he could regain his money. In the 600s there were local issues of paper currency in China, and by 960 the Song Dynasty, short of copper for coins, issued the first generally circulating notes.
A note is a promise to redeem later for some other object of value, usually specie (metal money). The issue of credit notes is often for a limited duration, and at some discount to the promised amount later. The original notes were restricted in area and duration, but the Yuan Dynasty, facing massive shortages of specie to fund their occupation of China, began printing paper money without restrictions on duration. By 1455, in an effort to rein in economic expansion and end hyperinflation, the new Ming Dynasty ended paper money, and closed much of Chinese trade.
In Europe, the first paper money consisted of paper 'coins' issued in Leyden in the Netherlands during the Spanish siege of 1574. Over 5000 of the estimated 14,000 residents of Leyden died, mostly due to starvation. Even leather (often used to create emergency currency) was boiled and used to feed the people. So to create currency, the residents took covers and paper from hymnals and church missives and created paper tokens, which were struck using the same dies that were previously used to mint coins.
The first proper European banknotes were issued by Stockholms Banco, a predecessor of the Bank of Sweden, in 1660, although the bank ran out of coins to redeem its notes in 1664 and ceased operating in that year.
In the early 1690s, the Massachusetts Bay Colony was the first of the colonies to issue the permanently circulating banknotes. The use of fixed denominations and printed banknotes came into use in the 18th century.
In the United States, public acceptance of banknotes in replacement of precious metals was hastened in part by Executive Order 6102 in 1933. This order carried the threat of a maximum $10,000 fine and a maximum of ten years in prison for anyone who kept more than $100 of gold in preference to bank notes. Similar measures were taken worldwide, with similar results.
In 1983, Costa Rica and Haiti issued the first Tyvek and the Isle of Man issued the first Bradvek polymer (or plastic) banknotes; these were printed by the American Banknote Company and developed by DuPont.
In 1988, after significant research and development by the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Reserve Bank of Australia, Australia produced the first polymer banknote made from biaxially-oriented polypropylene (plastic), and in 1996 became the first country to have a full set of circulating polymer banknotes of all denominations.
Since then, other countries to adopt circulating polymer banknotes include Bangladesh, Brazil, Brunei, Chile, Indonesia, Malaysia, Mexico, Nepal, New Zealand, Papua and New Guinea, Romania, Singapore, the Solomon Islands, Sri Lanka, Thailand, Viet Nam, Western Samoa and Zambia, with other countries issuing commemorative polymer notes, including China, Kuwait, the Northern Bank of Northern Ireland, Taiwan. Other countries indicating plans to issue polymer banknotes include Nigeria. In 2005, Bulgaria issued the world's first hybrid paper-polymer banknote.
Polymer banknotes were developed to improve durability and prevent counterfeiting through incorporated security features, such as optically variable devices that are extremely difficult to reproduce.
The uptake of polymer banknotes has however been comparatively slow with an estimated 1.5% of the Worlds banknotes now using this material. Problems with print durability and the very bulky nature of creased polymer notes rank high amongst the problems limiting polymer uptake. Some countries such as Thailand have reverted to paper after testing polymer notes in circulation. (info from Wikipedia)