Paper Currency In Ancient China

[Claribel Szwaja]

The Jiaozi was first used in present-day Sichuan by a private merchant enterprise. They were issued to replace the heavy coins (鐵錢) that circulated at the time. These early Jiaozi were issued in high denominations such as 1000 qin, which was equal to one thousand coins that of security. As denominations were not standard their nominal value was annually added by the issuing company. During the first 5 years of circulation there were no standard designs or limitations for the Jiaozi but after 5 years the sixteen largest Sichuanese merchant companies founded the Paper Note Bank (Jiaozi hu 交子戶, or Jiaozi bu 交子鋪) which standardised banknotes for them to eventually become a recognised form of currency by the local government with a standard exchange fee of 30 wn per string of cash in paper currency.

As these notes caused inflation Emperor Huizong decided in 1105 to replace the Jiaozi with a new form of banknote called the Qianyin (錢引). Despite this inflation kept growing and a nominal mn was only exchanged for a handful of cash coins. The root cause of this inflation was attributed to the fact that the Song government didn't back their paper money up with a sufficient number of coins. The Song decided to raise the amount of stocked coins, yet in vain as it did not curb the inflation. Despite there only being around seven hundred thousand iron cash coins in circulation around 3.780.000 mn of banknotes were in circulation which rose to 4.140.000 mn, while an additional 5,300,000 mn in banknotes were issued in 1204 at which point between 400 and as low as 100 cash coins were accepted per 1 mn (of paper currency with a face value of 1000 coins cash). Local governments such as the Sichuanese government had to sell off tax exemption certificates, silver, gold and titles of its offices because of the inflationary policies around paper money. One of the causes of inflation was the outflow of currency to the neighbouring Jin dynasty to the north, which is why iron cash coins were introduced in border regions.[3][4] In 1192 the exchange rate between iron cash coins and Jiaozi banknotes was fixed at 770 wn per gun by Emperor Guangzong, but inflation would still remain an issue despite these measures.

Despite the fact that all Jiaozi could be freely exchanged into cash coins their high denomination limited their use to large transactions. Rather than only being exchanged in coins, Jiaozi were often redeemed in Dudie certificates (度牒, a tax exemption certificate for Buddhist monks and nuns), silver, and gold. Eventually the Song government set an expiration date of 2 years for each Jiaozi, which in 1199 was raised to 3 years, after which they had to be either redeemed or replaced by newer series. The government officially restricted the amount of Jiaozi that could be in circulation to 1,255,340 mn, and were covered by only a fifth of that in copper cash coins. As these Jiaozi banknotes proved their usability private merchants began issuing their own notes in the north of the country and members of the military would receive their pay in paper money.

Problems with counterfeiting and over-issuance of the notes convinced the Ming dynasty to discontinue the use of paper money by 1455, with disastrous results for Chinese trade. In the 19th century, paper money was re-introduced as part of the Chinese currency system.

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As supplies of real shells were exhausted, ancient Chinese people began to imitate them using stones and animal bones, later casting them in copper. In the third century BCE, Emperor Qin Shihuang (259-210 BCE) unified China and introduced copper coins, each weighing about 16.14 grams. These small copper coins were round on the outside with a square hole inside. In the eyes of ancient Chinese people, the sky was square and the earth was round. They merged it into copper coins, symbolizing the organic unity of heaven and earth. Copper coins became a common currency that would be used for the next 2,000 years.

As the commodity economy developed, the use of jiaozi became increasingly widespread. Many merchants jointly established jiaozi shops that specialized in issuing and exchanging jiaozi, and set up jiaozi branches in Sichuan province. The printed jiaozi pattern was exquisite, with hidden markings, black and red stamps, and handwritten inscriptions, which were difficult for others to forge. Due to the complexity of the notes and the trustworthiness of jiaozi shop owners, jiaozi had developed a very good reputation.

However, managing credit was not easy, and most people did not have the ability to guarantee it for a long time. Due to changes in economic conditions, or perhaps fraud, some wealthy merchants were unable to repay their losses, and some paper currency could not be redeemed. This triggered a credit crisis, which ended the practice of private individuals issuing jiaozi.

In the winter of 1023, the government saw that issuing jiaozi was profitable, and under the pretext of resolving continuous disputes among merchants, it officially established a ministry of jiaozi affairs and introduced fairly exhaustive regulations and requirements. The power to issue jiaozi was transferred from private merchants to the court.

With the introduction of jiaozi, paper currency was in circulation in China six centuries earlier than in Western countries such as Sweden (1661), the United States (1692) and France (1716). This was a remarkable achievement, but it also triggered a number of financial crises.

The government quickly found that paper money was a profitable production with low costs. When there was a need for huge government financial expenditures, the government could use its power to issue paper currency without restrictions. But this would cause inflation, which led to the loss of credit attached to paper currency and turned it into waste paper.

The fate of jiaozi in the North Song Dynasty proved this. Eventually, the government no longer adhered to the fixed issuance amount for each sector, and instead issued large amounts of jiaozi. During the reign of Emperor Renzong Qingli (1041-1048), the Yizhou Jiaozi Affairs ministry issued 600 million in jiaozi in Shaanxi to pay for food for humans and horses, without maintaining any reserve.

Finally, Kublai Khan of the Yuan Dynasty issued paper money in 1260 that offered a reprieve from inflation. Based on silver and accompanied by sufficient reserves and strict control over issuance, it became the most stable and complete paper currency to date. It also became the common currency in Korea, Vietnam, Thailand and elsewhere. However, in the late Yuan Dynasty, the reserve funds for paper currency were misappropriated, and the issuance increased, ultimately leading to hyperinflation.

During the mid-1300s, the Ming Dynasty came to power, followed by the Qing Dynasty from the mid-1600s to the early 1900s. These dynasties witnessed a large influx of silver into China, and silver currency came to dominate economic life, competing with copper coins.

For several centuries, the problem of inflation due to paper money was kept largely at bay. However, during the late Qing Dynasty, following the Taiping Rebellion (1851-1864), the government collapsed and paper money was once again devalued by massive inflation. But by then, inflation or not, paper money was here to stay.

The widespread use of paper and printing were features of ancient China which distinguished it from other ancient cultures. Traditionally, paper was invented in the early 2nd century CE, but there is evidence it was much earlier. As a cheaper and more convenient material than bamboo, wood, or silk, paper helped spread literature and literacy but it was used for many other purposes from hats to packaging. The material was made finer over the centuries, was traded across Asia and was used in the first paper money from the early 12th century CE.

There is ample archaeological evidence of primitive paper types from the 2nd century BCE in China, largely using hemp. It is believed that the invention of this early form of paper was accidental after clothes, which were made of hemp, were left too long after washing, and a residue formed in the water which could then be pressed into a useful new material. The traditional date for the invention of more refined paper has long been 105 CE. Cai Lun, the director of the Imperial Workshops at Luoyang, is the one credited with creating paper by using soaked and then pressed plant fibres which were dried in sheets on wooden frames or screens. Cumbersome bamboo or wooden strips and expensive silk had been used for centuries as a surface for writing but, after much endeavour, a lighter and cheaper alternative had finally been found in the form of paper scrolls.

Over time different fibres were experimented with to make paper, and so the quality had greatly increased by the end of the Han period (206-220 CE). Fibres from many different plants, the stems of grasses, vegetable matter, hemp, tree bark, and even rags were used and blended in a constant quest of experimentation to find the cheapest mix of materials which produced the highest quality of paper. Rattan replaced the early hemp paper and was favoured for centuries until it was replaced by bamboo fibres as the most common raw material from the 8th century CE. One of the reasons for rattan's replacement was that the demand for paper was so great the slow-growing plant had almost been wiped out in certain regions of China. Bamboo grows much quicker than hemp and so was a significantly cheaper option. From the Song Dynasty (960-1279 CE) paper production techniques became even better and the main raw material was now the boiled bark of the mulberry tree. Chinese paper was of such high quality that it was traded to foreign states along the Silk Road.

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