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The Song leaders’ focus on merit proved beneficial to the dynasty's long-term goals as a new era of innovation took place in China, beginning in the late tenth century. In the eleventh century, the invention of the movable type press, probably by a scholar named Bi Sheng, replaced the more cumbersome woodblock press. Song officials quickly learned that not only could the movable type press be used to disseminate paper documents quickly, but it could also be used to print notes of financial exchange, which eventually became the first paper currency. <ref> Kuhn, p. 43</ref>
===The Why did the Song Dynasty Transition to Paper Currency in China=? ==
[[File: Song_dynasty_coins.jpg|300px|thumbnail|left|Coins from the Northern Song Period: the Holes in the Coins Are where the Strings Were Placed]]
During the Qin (221-206 BC) and the Han (206 BC-AD 220) dynasties that preceded the Song, the standard currency used was known as the <i>guan</i>. One guan usually equaled 1,000 round bronze coins with square holes that were threaded on a string as a full unit, or “string,” <ref> Glahn, Richard von. “Monies of Account and Monetary Transition in China, Twelfth to Fourteenth Centuries.” <i>Journal of the Economic and Social History of the Orient</i> 53 (2010) p. 465</ref> As the Song economy flourished, more and more copper strings were in circulation throughout the empire. The number reached 1.83 million strings in 1007 and five million by 1080, leading officials to add lead to the coins, which devalued the currency. <ref> Kuhn, pgs. 233-4</ref> Song economists knew that they could not further devalue the metal currency without adversely affecting the economy, so they developed the idea of paper currency.
Today, paper currency is not “backed” by gold, but gold and silver were the value backing most national currencies for most of human history. As the number of bronze coins began to diminish in Song China, the paper notes eventually became linked to silver as the hard currency backing the paper money. After 1160, the <i>huizi</i> was denominated in bronze coin strings, but backed by silver. <ref> Glahn 2010, p. 466, 501</ref> Although the creation of paper currency was truly revolutionary and proved to be a medium-term boon for the Song economy, its misuse proved to be one of the final nails in the Southern Song’s coffin.
== Why did the Song Dynasty stop using Paper Currency? ==The Song’s issuance of paper currency worked well for nearly 100 years. Still, after a while, 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. Still, there is no argument that it did not help the overall situation – the Song leaders could no longer pay to field armies nor pay the annual tribute to their more martial-minded neighbors in the north.
===The Impact of Song Paper Currency===