Paper Money: Great Invention of China -- Part 1

Jiaozi

Paper money is a crucial part of an economy and even our everyday lives. It is use to pay our allowances and salaries. It is used to pay our needs and wants. For the whole economy, it saves consumers from the burden of carrying large amounts of heavy coins. It is also a way to stimulate the economy. However, if there is too much paper money in circulation, its value decreases and prices could also increase. This effects are not new. During the infancy of paper money, it suffered the same effects.

The first paper money was used in China during the Tang Dynasty. Under the Tang, China experienced prosperity. Trade and commerce flourished. Agricultural production was high. The Chinese people were contented. With peace and prosperity, new innovations emerged. In commerce and currency, paper money was in the forefront of these innovations. In 806, under Emperor Xianzong, the first paper money was issued by the imperial government. The invention of printing press allowed Chinese to produced text or images in large quantities. The invention made it possible to produce identical certificate and notes. Even before the issuing, the private sector, including deposit shops and blacksmiths, already used bills of credit or certificate as payments and for transactions. In the army itself, troops preparing to go to their assignments must first give sacks of grains to his officials for food tickets. The troops could then use these food tickets to get the equally amount grains to his assigned location. In 800’s, China suffered a shortage of copper, an element important for the creation of bronze. The copper shortage caused a short supply of hard bronze coins. The imperial government made every effort to achieve enough copper for the production of bronze coin.  The government even banned the production of tools and utensils made of copper to concentrate in coin production. In case of shortage of coins, the government issued so-called bons to merchants for hard bronze coins. The bons were convertible to bronze coins in any provincial treasuries. The merchants called this bonds feiquian or flying cash. Flying because the paper could be easily blown away by the air and cash, a term used for a strings of coins. The use of flying money, however, was minimal.

The rise of paper money began during the Song Dynasty. During the 10th century, in the Szechuan Province, copper was a problem. The province was isolated. It also lacked copper mines to produce bronze. Once again, exchange notes known as jiaozi was distributed by different deposit houses of the private sector.  Other types of exchange notes were also distributed, such as jifu huizi. These notes can be used for payments of debt and even as an exchange for goods. It showed images of houses, trees, and other sceneries. They also used black and red ink on the same certificate as a counter measure against counterfeits. In addition, they also printed their own seals to the certificates. The use of jiaozi and other notes proliferated towards the 11th century. It was used to pay Jurchen barbarians to stay away from the Song China. The huge amounts of the jiaozi and other notes printed caused its depreciation. The privately printed jiaozi and huge amounts of government printed ones caused inflation or rise of commodity prices. In 1024, the Song government banned the private sector from producing any more money. The government became the sole printer of money. To gather the excess printed money, the government instituted the Office of Jiaozi to serve as a savings bank. And to curbed over-printing, the government-issued paper money had the year that it was printed. It had a year because their only valid for 3 years and to be exchange, a 3% charge must be paid. In 1130’s military campaign caused another shortage of metals. The Song authority then had to use paper money to pay their troops. Again the large number of paper handouts to the soldiers caused its value to deflate and cause rise on prices. Then in 1160, under the Gaozong Emperor, a monetary reform was under taken. New notes called Huizi were issued. The change of notes led to the alleviation of inflation. However, six years later, the same problem hit again. But with new reforms, its value rebounded and continued to be used for the rest of the Song Dynasty.

Huizi

Paper money was continued to use by several other dynasties. Some dynasties overlapped each other. The Yuan or Mongols would adopt the use of paper money. However, at the dawn of the Ming Dynasty, the luster of the paper money disappeared.

Paper Money: Great Invention of China -- Part 2

See Also:
Divine Tea: Discovery of Tea by Shennong
Florin: Medieval Age Euro
Goddess of Silk: Leizu
The Powder that Changed the World
Printing: Tang Dynasty and the Diamond Sutra
Unforgettable Invention of China - Paper

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Goetzmann, W. & K. G. Rouwenhorst. The Origins of Value: The Financial Innovations that Created Modern Capital Markets. New York: Oxford University Press, 2005. 

Kaul, V. Easy Money: Evolution of Money from Robinson Crusoe to the First World War. New Delhi: Sage Response, 2013.

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"History of Chinese Invention - The Invention of Paper Money." Computersmith.com. Accessed February 1, 2014. http://www.computersmiths.com. 

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