An Encyclopaedia on Chinese History, Literature and Art

Paper Money in Premodern China

May 10, 2016 © Ulrich Theobald

Paper money (zhibi 紙幣) in China was first used during the Song period 宋 (960-1279), but had precursors as bills of exchange, which emerged during the late 8th century for long-distance trade. Chinese historians even see the use of white deer skin (bailupi bi 白鹿皮幣) during the Former Han period 前漢 (206 BCE-8 CE) as the first evidence of "paper money". The skin was valued at 400,000 copper coins, was backed by precious jades, and was provisionally used because of the lack of coins on the market. Apart from these "skin bills", the Han government made use of ingots of silver and zinc as a substitute for coins (Yin xi zao baijin 銀錫造白金; Hanshu 漢書, 24 Shihuo zhi 食貨志).

The economy of Tang China 唐 (618-907) grew faster than the central government was able to produce coins. In many places therefore copper coins were lacking. At the same time the commercialization of the economy had made progress, and many goods, in particular tea, were traded over long distances. In order to balance out the lack of coins, and to save transport cost and the danger of being robbed, tea merchants therefore invented a bill of exchange. It was called "flying money" (feiqian 飛錢) and was issued by merchant companies in the circuits of Tang China. The bills were acknowledged by the metropolitan branches of the merchant houses in the capital Chang'an 長安 (today's Xi'an 西安, Shaanxi), the so-called Capital Liaison Offices (jinzouyuan 進奏院). The bills were issued as two-part tallies, one of which was given to the merchant, and the other directly sent to the counter-institution, which checked the authenticity of the bill before handing out money to the incoming merchant. The bills were therefore also called "easy exchange" (bianhuan 便換).

The need for money rose constantly in the 10th and 11th centuries, not just because the Song government was confronted with tremendous expenditure for their standing army, but also because the 9th century had seen the introduction of a new tax system, the twice-taxation method (liangshuifa 兩稅法), which allowed or even required the payment of taxes in money instead of in kind. Concurrently, urbanization, commerce and the integration of regions increased, and demanded a greater volume of money as a practical and impersonal means of payment. Indeed, there was no imperial dynasty in China who produced more copper coins than the Song. The use of peculiar heavy iron coins (tieqian 鐵錢) in Sichuan directly inspired local merchants to replace higher sums of money by paper money. Sixteen merchant companies decided to commonly issue paper notes (jiaozi 交子, guanzi 關子, huizi 會子) which worked like promissory notes. They were mainly used in Sichuan, but some also circulated in Shaanxi and elsewhere.

These notes were not standardized, for which reason the local government in 1023 decided to take over the responsibility over the issuing of the notes. They carried seals and a serial number, and were decorated with red and black patterns. The early jiaozi notes were denominated according to need, but later ones were issued in fix denominations, like 10 guan 貫 (a string of 1,000 cash coins), 5 guan, 1 guan or 500 wen 文 (coins). The government paper-notes office (jiaozi wu 交子務) levied an exchange fee of 30 wen for each guan, i.e. 3 per cent. The notes were mostly issued twice a year, particular when silk was spun and the harvest approached, a time during which the merchants would be busy. Yet the jiaozi notes were also used for other types of wholeseale business and large transactions like the purchase of real estate. Each note was valid for two years but was then exchangeable against a fresh one. The government even cared for the backing of notes (beijin 備金) by "real" money, but the share of backed paper money among the total sum was always negligible, and it was impossible to control inflation. In 1107 the paper currency was officially called qianyin 錢引 and became common also outside of Sichuan. Paper notes used by the common people were known as qianhuizi 錢會子. From 1161 on the Southern Song 南宋 (1127-1279) government promoted the use of paper money and issued large amounts of three-colour printed paper bills backed by 280,000 guan of copper money. In northern China, the Jin dynasty 金 (1115-1234) imitated the Song paper money and introduced the jiaochao 交鈔 currency.

The monetary policy of the Yuan dynasty 元 (1279-1368) followed quite different principles. While copper coins remained in use (with the three main types of Zhida tongbao 至大通寶, Dayuan tongbao 大元通寶 and Zhizheng tongbao 至正通寶) and "strings" (guan 貫) was the common unit of account, silver took over an important place in the economy and was supplemented by paper money (baochao 寶鈔). The first type of paper money was the Zhongtong chao 中統鈔 or Zhongtong jiaochao 中統交鈔, whose denomination was derived from silk fabric used as money, while the Zhongtong baochao 中統寶鈔 was based on silver as a currency. From 1271 on the Zhiyuan baochao 至元寶鈔 was issued, and in 1309 the Zhida yinchao 至大銀鈔 (circulating but for one year). The last paper currency of the Yuan period was the Zhizheng jiaochao 至正交鈔, issued from 1350 on. Unlike the earlier Song-period attempts in paper currency, Yuan paper money was, at least in certain regions of the empire, the only officially acknowledged type of money, and was therefore not exchangeable with silver nor with copper coins (a prodecure called duixian 兌現 "convert into specie"). The impact of inflation was therefore all the more serious, because there was no way to evade to other currencies. In this predicament, the government allowed the populace to use copper currency, and from time to time even issued new copper cash. In the last decade of the Yuan period, barter trade had become a common means of exchange in the Yuan empire.

In 1374 Emperor Taizu 明太祖 (r. 1368-1398) of the Ming dynasty 明 (1368-1644) founded the Supervisorate of Paper Money (baochao tijusi 寶鈔提舉司) which supervised the production of paper money. A year later the first set of Da-Ming baochao 大明寶鈔 notes was issued, made of mulberry bark. The one-guan 貫 note was valid 1,000 copper cash and had a size of 36.4 × 22 cm. It was thus the largest paper bill ever produced in China. According to the legend inscribed it was valid throughout the empire. In the middle was the image of a string of cash coins (qianguan 錢貫), and on the smaller denominations unstringed coins. On the foot of the note was written that it was issued by the Palace Secretariat (zhongshusheng 中書省), a valid type of money concurrently used with copper cash, that forgers would be punished, and notifiers highly rewarded. Last but not least, the inscription included the date of issue.

In 1380 the Imperial Secretariat was abolished, and the Ministry of Revenue (hubu 戶部) was made responsible for the production of paper notes, and the Ministry of Works (gongbu 工部) for that of copper cash. Accordingly, the inscription on the paper notes was changed. In 1389 the denominations 10 wen and 50 wen were introduced, "as a help to the people" (yi bian min yong 以便民用). Emperor Chengzu 明成祖 (r. 1402-1424) fixed the Da-Ming baochao as the only valid paper currency for the whole life of the dynasty. It was accordingly never reformed or altered. In contrast to the Song- and Yuan-period paper bills, there was no restriction as time or geographical limits, nor was there any limitation to the volume of paper money circulation, nor was it backed by "hard money", as had been custom during the Song period (at least to a certain extent). Inflation was thus inevitable. In 1376 a replacement regulation was introduced, according to which worn-out bills or such torn apart could be replaced, yet a certain fee (gongmofei 工墨費) of 30 wen was to be paid. Yet four year later a law restricted the replacement to such bills on which the denomination was not readable any more. The people therefore began to discount old, worn-out bills, angry that the government only accepted fresh bills for tax payment, or even no bills at all. The government did in fact throw paper bills on the market, for instance, in the shape of salaries to the troops (junxiang 軍餉), but did not accept paper bills as a kind of payment to government instutitions.

The bad experience of the Yuan and Ming regimes with the inflationary paper money were warnings to the Qing dynasty 清 (1644-1911) not to repeat the same error (barring for a few years in the very early Qing period). Yet under greatest distress in the mid-19th century, the Xianfeng 咸豐 (1851-1861) administration could not but reform the monetary system. The Taiping rebellion 太平 had blocked the access of mint metals from southwest China, but more money was needed to fight the insurgents. The advisors of the Xianfeng Emperor not only introduced copper coins with higher denominations than one, as well as coins made of other metals than brass, but also revived paper money in the shape of the Xianfeng baochao 咸豐寶鈔. The history of the monetary crisis during the Xianfeng reign-period and the attempts at remedy is very complex. Quite important is the outcome that the government did indeed earn some revenue just by issuing these new types of money.

The baochao paper money, also known as qianchao 錢鈔 "cash notes", was inscribed with the words Da-Qing baochao 大清寶鈔 and was first produced in the denominations 500, 1,000, 1,500, and 2,000 wen, later also 5,000, 10,000 (shi qian wen 十千文), 50,000 (wushi qian wen 五十千文) and 100,000 (bai qian wen 百千文) wen.

A second type of paper money was issued by the Ministry of Revenue - the Hubu gianpiao 戶部官票. It was issued in the denominations 1, 3, 5, 10, and 50 tael/liang 兩, and was therefore called yinpiao 銀票 or yinchao 銀鈔 "silver notes". The latter were exchangeable into copper cash and silver, but only in certain institutions in Beijing under the Ministry of Revenue. The former were not redeemable at all. In the first months after the introduction of these types of paper money in 1854, government officials and troops were paid in paper money, but the government did not accept them for tax or any other payment to the authorities. Even in the provinces many government institutions did not accept the paper currency, at least not in the beginning. As a consequence, the notes were discounted on the markets or likewise not accepted. In 1855 a 1-liang silver note or a 1,000-wen cash note was just valued 450 Beijing cash (jingqian 京錢) or 2-300 standard cash. The market value of the paper money constantly decreased, also because the government brought into circulation ever higher amounts of it. In 1861 the state was forced to abolish the currency.

At that time the silver notes had already disappeared from circulation, and a 1,000-wen cash note was just worth 26 wen, or 52 wen at the most. In the early years of the Tongzhi reign-period 同治 (1862-1874) Henan and Sichuan stopped accepting paper notes for tax payment and required again tax payment in silver, yet Zhili 直隸 (modern Hebei) continued to accept the notes, at least in a certain proportion to silver. The currency was finally given up in 1868.

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Wu Chouzhong 吳籌中 (1993). "Zhongguo gudai zhibi 中國古代紙幣", in Zhongguo da baike quanshu 中國大百科全書, Wenwu boguguan 文物·博物館 (Beijing/Shanghai: Zhongguo da baike quanshu chubanshe), 784.
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Further reading:
Bernholz, Peter (1997). "Paper Money Inflation, Prices, Gresham's Law and Exchange Rates in Ming China", Kredit und Kapital, 30/1: 35-51.
Chen, Chau-Nan, Chang Pin-Tsun, Chen, Shikuan. "The Sung and Ming Paper Monies: Currency Competition and Currency Bubbles", Journal of Macroeconomics, 17/2: 273-288.
Glahn, Richard von (2006). "Re-Examining the Authenticity of Song Paper Money Specimens", Journal of Song-Yuan Studies, 36: 79-106.
Glahn, Richard von (2010). "Monies of Account and Monetary Transition in China, Twelfth to Fourteenth Centuries", Journal of the Economic and Social History of the Orient, 53/3: 463-505.
Kaske, Elisabeth (2015). "Silver, Copper, Rice and Debt: Monetary Policy and Office Selling in China during the Taiping Rebellion", in Jane Kate Leonard, Ulrich Theobald, ed. Money in Asia (1200 – 1900): Small Currencies in Social and Political Contexts (Leiden/Boston: Brill), 343–397.
Li, Kangying (2007). "A Study on the Song, Yuan and Ming Monetary Policies against the Context of Worldwide Hard Currency Flows during the 11th-16th Centuries, and their Impact on Ming Institutions and Changes", in Angela Schottenhammer, ed. The East Asian Maritime World 1400-1800: Its Fabrics of Power and Dynamics of Exchanges (Wiesbaden: Harrassowitz), 99-136.
Williams, S. Wells (1975). "Paper Money among the Chinese", T'ung Pao: Journal of the Society for Oriental Numismatics, 1/2: 38-40 [reprinted from The Chinese Repository, 20 (1851)].
Rowe, William T. (2010). "Money, Economy, and Polity in the Daoguang-Era Paper Currency Debates", Late Imperial China, 31/2: 69-96.
Yang, Lien-sheng (1975). "Monetary Terms in Chinese History", T'ung Pao: Journal of the Society for Oriental Numismatics, 1/2: 47-54 [reprinted from Chinese Culture, 1/4 (1958)].