Paper Money

Paper money originated in China during the Tang Dynasty (618-907 CE), when merchants in Sichuan province began using certificates of deposit called feiqian, or "flying money," to avoid transporting heavy strings of copper coins over long distances.1 These certificates were not yet currency in the modern sense. They were receipts that could be exchanged for coins at a government office in the capital.

The transition from receipt to currency occurred during the Song Dynasty (960-1279 CE). In the 1020s, the government of Sichuan authorized the printing of jiaozi, the first government-issued paper notes intended to circulate as money.2 By the twelfth century, the Song government was printing paper money backed by reserves of coin, silk, and gold.

The Mongol Yuan Dynasty (1271-1368) under Kublai Khan expanded paper money into a dominant medium of exchange across the empire. Marco Polo described the system with astonishment in his account of his travels, noting that the Great Khan's paper notes were accepted throughout his realm.3

Europe did not adopt paper currency until centuries later. The Stockholm Banco in Sweden issued the first European banknotes in 1661.4 The Bank of England followed in 1694. The abstraction that a piece of paper could represent value, carry wages, and settle debts, an assumption embedded in every modern salary payment, was a Chinese invention that took roughly a thousand years to reach the rest of the world.5