The goldsmith weighs your chain and drops a bit of liquid on it from a bottle. "The gold is pure," he says. "You can leave your chain with me. Here is a cheque for 5 pounds."

The goldsmith gave you a paper saying that you have something worth five pounds on deposit. Another merchant knows he can redeem the note from the goldsmith. So he accepts this note as payment from you and gives you gold coins as change.

This is a big advance in money: the bank note is a representation of something of value that's easier to use than the valuable thing itself.