The U. S. government first issued paper money this date yesterday in 1862. Paper currency was issued by the Massachusetts Bay Colony to fund military expeditions. Other colonies quickly took up the practice of issuing paper notes. The Continental Congress issued paper currency to finance the Revolutionary War in 1775.
Development of the banknote began in the Tang Dynasty during the 7th century, with local issues of paper currency, although true paper money did not appear until the 11th century, during the Song Dynasty. Its roots were in merchant receipts of deposit during the Tang Dynasty (618–907), as merchants and wholesalers desired to avoid the heavy bulk of copper coinage in large commercial transactions.
Most banknotes are made from cotton paper, sometimes mixed with linen, abaca, or other textile fibers. Generally, the paper used is different from ordinary paper: It is much more resilient, resists wear and tear, and also does not contain the usual agents that make ordinary paper glow slightly under ultraviolet light. Unlike most printing and writing paper, banknote paper is infused with polyvinyl alcohol or gelatin, instead of water, to give it extra strength.
In the United States, banknotes last an average of three years until they are no longer fit for circulation, after which they are collected for destruction, usually recycling or shredding. A banknote is removed from the money supply by banks or other financial institutions because of everyday wear and tear from its handling. Banknote bundles are passed through a sorting machine that determines whether a particular note needs to be shredded or are removed from the supply chain by a human inspector if they are deemed unfit for continued use – for example, if they are mutilated or torn. (from Wikipedia)