Changes

Today, most people take the existence of paper money for granted and few know how its use originated and developed throughout history. In Western countries such as the United States, paper money has a relatively short existence going back to the seventeenth and eighteenth centuries, but in China paper currency first began circulating over 1,000 years ago.  The development of paper money was the result of a larger historical process whereby the leaders of the Song Dynasty (AD 960-1279) had to devise new ways to compensate for the demand in metal currency that was the result of their expanding economy. In the end, although the Song Dynasty collapsed for a variety of reasons, their use of paper currency was adopted by later Chinese dynasties, eventually spreading to other Asian peoples. Despite having a profound impact on Asian economic history, paper currency would be one of many inventions/discoveries that never left east East Asia and was only discovered in Europe independently several centuries later.

The Song Dynasty is generally divided by scholars into the Northern Song (960-1279) and the Southern Song (1127-1227), although the Chinese would have seen no such division at the time. The division was the result of pressures from militarily powerful enemies from the north who pushed the Song Dynasty further south, but for the most part , there was cultural and political continuity between the Northern and Southern Song. The Song came about after the Tang Dynasty, which had ruled over a unified China, collapsed in AD 907, ushering in a more than fifty year period of anarchy and political decentralization in China. During the period of decentralization, five dynasties claimed power, one of which was known as the “Later Zhou.” In 960, the Later Zhou was led by a child emperor who was protected by a palace army led by a man named Zhao Kuangyin. After serving as a loyal commander for some time, Zhao Kuangyin decided he wanted to rule so he deposed the child emperor in 960 and was proclaimed by his followers as Taizu (reigned 960-976), the first of the Song emperors. <ref> Kuhn, Dieter. <i>The Age of Confucian Rule: The Song Transformation of China.</i> (Cambridge, Massachusetts: The Belknap Press of Harvard University Press, 2009), p. 19</ref>

During the period of decentralization, five dynasties claimed power, one of which was known as the “Later Zhou.” In 960, the Later Zhou was led by a child emperor who was protected by a palace army led by a man named Zhao Kuangyin. After serving as a loyal commander for some time, Zhao Kuangyin decided he wanted to rule so he deposed the child emperor in 960 and was proclaimed by his followers as Taizu (reigned 960-976), the first of the Song emperors. <ref> Kuhn, Dieter. <i>The Age of Confucian Rule: The Song Transformation of China.</i> (Cambridge, Massachusetts: The Belknap Press of Harvard University Press, 2009), p. 19</ref> Taizu set up the Song capital at Kaifeng, which is where it would remain until the collapse of the Northern Song. Although the Song had to contend with powerful and sometimes bellicose neighbors, it differed from many pre-modern Chinese dynasties because it deemphasized, or even eschewed, martial culture. Song emperors placed the civil branch over the military, which was a direct byproduct of their stringent following of Confucian philosophy. The Song was also different from many previous Chinese dynasties in that merit was rewarded over nepotism: officials were chosen due to their knowledge of the Confucian canon, not their family connections. <ref> Kuhn, pgs. 31-39</ref>

The issuing of paper currency in Song China was as much of a process as the invention of paper currency itself. There was no single currency until the end of the dynasty, but instead , there were several currency zones throughout China. The first paper currency used was the <i>jiaozi</i>, which was first issued in Sichuan. <ref> Glahn, Richard von. “Re-examining the Authenticity of Song Paper Money Specimens.” <i>Journal of Song-Yuan Studies</i> 36 (2006) p. 80</ref>

The Song’s issuance of paper currency worked well for nearly 100 years, but after awhile China was faced with the same economic problem as the Romans before them and countless later countries – inflation. There were an estimated 650 million strings on the market in 1246, which led to an extreme devaluation of the <i>huizi</i> and eventually runaway inflation. The Song leaders made the same mistake as other world leaders have in similar situations by printing more and more money, which only aggravated the inflationary cycle. The Song paper currency collapsed in 1264 and the dynasty itself was wiped out just fifteen years later. <ref> Kuhn, p. 241</ref> Whether the inflationary cycle was a symptom or one of the reasons for the Southern Song’s demise is open to argument, but there is no argument that it did not help the overall situation – the Song leaders could no longer pay to field armies nor could they pay annual tribute to their more martial -minded neighbors in the north.

The Song was replaced by the Mongol Yuan Dynasty and although foreign, the Yuan instituted a policy of cultural continuity, which included the use of paper money. Like the Jurchen Jin Dynasty, the Yuan rulers followed the Southern Song policy of tying their paper currency to silver. <ref> Glahn 2010, p. 483</ref> From China, the concept of paper money spread to other east East Asian kingdoms such as Korea.

Perhaps one of the biggest impacts that the invention of paper money had in Asia was the diminishing value of bronze, copper, and iron coins. Once the Southern Song tied their paper notes to silver, the intrinsic value of metal coins declined, which resulted in much of those metals being exported to Japan. <ref> Glahn 2010, p. 501</ref> In fact, the use of paper currency in China hurt the metals industry in general as mining withered during the Southern Song. <ref> Smith, Paul J. “Do We Know as Much as We Need to Know About the Song Economy? Observations on the Economic Crisis of the Twelfth and Thirteenth Centuries” <i>Journal of Song-Yuan Studies</i> 24 (1994) p. 329</ref> The Song discovery of paper currency truly had a great impact on east East Asia, but it would be centuries before Europeans discovered the benefits and drawbacks of using paper notes.