Innovation & Wealth › Medieval & Renaissance money › First coins (Lydia)
Paper money in Song China
1024 (first government-issued notes)· Innovation· Innovations & industries
Well documentedSolid records, texts or physical evidence.
Song China became the first state to issue paper currency, in 1024, building on merchants' deposit receipts.
See it on the Innovation & Wealth map →What happened
Sichuan province used heavy iron coins, so merchants in Chengdu began issuing paper receipts, called jiaozi, redeemable for coin. After some issuers defaulted, the government took over and printed official notes in 1024. Later Song, Mongol Yuan and early Ming governments printed ever more notes to pay for wars and spending; Marco Polo marveled at them. Overissue brought repeated inflation, and by the mid-1400s Ming paper money had largely collapsed. China turned to silver instead.
Impact on society and the economy
Money no longer had to be metal; its value rested on trust in the issuer, the principle behind every modern currency. So did the temptation to print too much.
How we know
Chinese official histories describe the jiaozi and the 1024 takeover. No notes from 1024 survive, but later Yuan and Ming notes do, along with Marco Polo's account.
Still debated
When merchants first issued notes, perhaps in the 990s, and why governments repeatedly failed to restrain printing, are debated.
Connections (3)
▸First coins (Lydia) were followed, centuries later, by Paper money in Song ChinaWell documented
The connection
Coins solved the weighing problem but created a carrying problem. In Song China, where Sichuan used heavy iron coins, merchants issued paper receipts against deposited coin. The government took over in 1024, and paper began to stand in for metal. China had developed its own coins separately, not from Lydia.
When and how
Chengdu, Sichuan province, from the late 900s to 1024, by merchant houses and then the Song government.
How we know
Chinese official histories record the iron-coin problem, the merchant receipts and the 1024 government takeover.
Debates
This link is conceptual: Lydian and Chinese coins arose independently. Exactly when private notes began is uncertain.
▸Paper money in Song China collapsed by Ming times, leaving China hungry for Potosí silver and forced laborMostly agreed
The connection
China's government notes, begun under the Song, were overprinted under the Yuan and Ming until they lost nearly all value by the mid-1400s. China turned to silver for trade and, with the Single Whip reforms of the 1570s, for taxes. Silver became worth far more in China than in Europe, so American silver flowed there, much of it via Manila.
When and how
Ming China from the 1430s to the 1580s; Spanish galleons sailed from Acapulco to Manila from 1571, where Chinese merchants traded silk and porcelain for silver.
How sure are we?
Ming fiscal records, Manila galleon registers, and gold-to-silver price ratios showing silver valued roughly twice as highly in China as in Europe around 1600.
Debates
How much American silver reached China, perhaps a third or more of output, is debated; historians also weigh China's demand against Europe's in driving the trade.
▸Paper money in Song China foreshadowed the paper-money experiment of John Law and the Mississippi BubbleMostly agreed
The connection
Song China proved paper notes could work as money when people trusted the issuer; later Yuan and Ming overprinting showed how fast that trust collapses. Nearly seven centuries later, Law argued paper backed by land and company shares could revive France's trade. His notes followed the same arc, booming in 1719 and collapsing in 1720 after he printed too many.
When and how
Sichuan, China, from 1024; Europe heard of Chinese paper money through Marco Polo around 1300; Paris, 1716–1720.
How sure are we?
The parallel is clear, but direct influence is not documented: Law's writings drew mainly on Dutch and English banking, and Europe already had banknotes, as in Stockholm in 1661.
Debates
Whether Chinese practice influenced European paper money at all, through travelers' reports, is unproven; the two experiments mostly show the same lesson learned twice.