The monetary system of the restored state of Serbia began to be created towards the end of the second reign of Prince Michael Obrenovic (Knjaz Mihailo). By the mid 19th century, there where forty three types of foreign money in circulation. Since this caused difficulty in exchange, the inhabitants of Serbia called for a domestic currency that would replace the foreign. An even stronger reason for this was of a political character: the issue of a domestic currency would further strengthen morale in a country still striving for its complete independence.
Although the Sultan’s hatti-sheriff did not give the right to mint money, Prince Michael sent his finance minister Kosta Cukic to Vienna in February 1868 to negotiate the striking of the first Serbian money. A decision of March 15 the same year provided for the minting of copper coins of three denominations: one, five and ten paras. Since the money was not ready by the agreed time (May), Prince Michael, who was killed on May 29, 1868 did not live to see it in circulation. The first consignment of domestic money was not delivered until the beginning of 1869, and was put in circulation on February 20 the same year, gradually replacing the Austrian and Turkish small coins.
Though the value of the small coins minted came to less than a million dinars, this was an encouraging start. In 1875, the first Serbian silver coins in denominations of fifty paras and one and two dinars were issued. There was lengthy discussions about the name to be given to this monetary unit, the proposal that it should be called “srbljak” being finally rejected in favour of the name dinar.
In 1879, the first gold coin “milandor” was minted, weighing 6.45 grams and with a value of twenty dinars. In the same year coins of five, ten and fifty paras, and one, two and five dinars were struck.
In this way, within a short time Serbia formed its national currency, adopting the standards of the Latin union.
Two years after the release of the first Serbian copper coins, an official proposal for the printing of paper money in Serbia was submitted to the assembly in Kragujevac. The minister of finance considered this matter and asked for the opinions of various institutions about it, but because of differences a decision was long deferred. It was not until January 1876, at a secret meeting of the Ministerial Council, that a legal decision was passed authorizing the printing and issue of bank notes to the value of twenty four million dinars, as one of the measures to cover the costs of the planned war with Turkey. At that time the necessary printing material was obtained abroad, and while the quality of the paper and machines was being tested, about one thousand five hundred notes of various denominations were printed. It is believed that the designs for these were the work of the painter Djura Jaksic. This first issues was not completed or put in circulation.
The developing economy, increased investment and state needs led to the founding of the Privileged National Bank of the Kingdom of Serbia in 1884. This created conditions for Serbia to begin issuing banknotes, and in the same year there was an issue of one hundred dinar notes, redeemable in gold, printed in Belgium.
However, the people were accustomed to metal money and had no confidence in paper. As soon as a person received a banknote in a bank, he would go straight to another counter and exchanged it for gold. Consequently, the first official Serbian banknotes circulated only within the bank buildings. The same happened with the fifty dinar notes issued the following year. It was not until the ten dinar note, redeemable in silver, was issued in 1885 that paper money gained the confidence of the population and began to circulate.