First Paper Money
Around 1088, the Song Dynasty of China was in the middle of an experiment that would reshape the history of money: government-issued paper currency, widely regarded as the world's first banknotes. The date given here is a convenient marker rather than a precise founding moment, since paper money in China developed gradually over several decades, and its significance lies in the fact that a state came to treat paper notes as a regular, official part of its monetary system.
The background lay in the weight and inconvenience of metal coin. Song China had a booming commercial economy, with growing cities, long-distance trade, and a vast population, but its everyday currency was copper cash, strung together in heavy bundles. Iron coins, used in some regions such as Sichuan, were even bulkier, making large transactions difficult to carry and transport. Merchants in Sichuan began issuing paper certificates of deposit, often called jiaozi, in the late tenth or early eleventh century. These were private receipts that could be exchanged for coin and gradually circulated as money in their own right.
The government stepped in around the early eleventh century, taking over and regulating the issue of jiaozi in Sichuan, an arrangement usually dated to roughly the 1020s. Notes were issued for limited terms, and were redeemable for coin, with reserves meant to back them. By the time of the 1080s, paper currency was an established feature of the Song fiscal system, and later reforms and new note types extended its use. Printing technology, already well developed in China through woodblock printing, made it practical to produce notes with specific designs and markings intended to deter counterfeiting.
The system also revealed the problems of paper money. When governments issued more notes than they could back with reserves, usually to cover military or administrative expenses, the notes lost value. Song authorities struggled with this repeatedly, especially as warfare against northern powers drained resources. Later regimes, including the Jin and the Mongol-led Yuan dynasty, continued and expanded paper currency, and the Yuan relied on it heavily. Their experience also included episodes of inflation and loss of public confidence.
The legacy was substantial. Marco Polo and other travelers later described Chinese paper money to astonished European audiences, and the concept eventually spread through the wider world, with banknotes appearing in Europe centuries afterward. The Song experiment introduced ideas that remain central to modern economies: that money can be a token backed by institutional trust rather than by the intrinsic value of metal, and that its worth depends on a government's ability to manage its supply.