Paper Money History: An Interesting Point a Failed Attempt and a Temporary Measure

Cash, Persia and The Netherlands

Did you know that the word "cash" was first used a long time ago during the Ming Dynasty in China. I honestly can't stop being amazed by the little tit-bits of information that comes my way daily as I find out more and more about paper money.

The currency during the Ming Dynasty was called "cash" just as we would use the word "dollar" in USA or "pound sterling" in United Kingdom

Then I must mention the failure that occurred with paper money before this form of currency took root in Europe in the 17th Century AD. Firstly in 1294 Persia made an attempt to copy China's use of paper money as a means of exchange unrestricted by location and duration. It failed horribly within days! What a blow that must have been for them!

And then in dear old Europe just as the Ming Dynasty decided to do away with paper money, inflation and world trade, the first form of paper money was used in the Netherlands. There was a siege in 1574 and coins were scarce, a form of exchange was desperately needed, and so cardboard tokens were used as money during the military siege of Leyden.

Paper Money History: The Beginning Was In China

China: Paper Money's First Appearance.

The first form of Paper Money is commonly believed to have originated in China. Prior to this coins were the known currency, these had rectangular centers. When the coins got too heavy for a rich man to carry about usually stringed together with a rope, he would keep his money with a trusted gentleman, who would issue him a paper note with the amount of coins in his keep noted on it. This served as a promissory note, sufficient enough for a trader to release his goods to the merchant or rich man. If the trader showed the paper he could get his money, and so the first bankers were born.

It is known that in the 600's there were local issues of paper money in circulation in China. I find it very interesting to find that Western Civilization actually trails behind the east in the invention of paper money.

From this system "jaozi" paper money was born, when in 960AD the Song Dynasty started circulating paper notes as there was a shortage of copper used for making coins. This was the first time a governing body issued paper money for circulation as a means of official monetary exchange.

Thus numismatic scholars generally agree that China is the birthplace of Paper Money.

"Jaozi": World's first known Paper Money

These credit notes were usually issued with limited location and duration restrictions, as they still served as promissory notes in which some other objects of value could be redeemed. Things changed radically when the Yuan Dynasty (1279-1368AD) were forced to issue notes that had no location or duration restrictions, as they had run out of money (that is other objects of value) which they needed to pay the holder of the notes.

Here is an account relating to this period given by one of the great explorers, Marco Polo:

All these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver; and on every piece a variety of officials, whose duty it is, have to write their names, and to put their seals. And when all is prepared duly, the chief officer deputed by the Khan smears the seal entrusted to him with vermilion, and impresses it on the paper, so that the form of the seal remains imprinted upon it in red; the money is then authentic. Anyone forging it would be punished with death. And the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world.

Furthermore all merchants arriving from India or other countries, and bringing with them gold or silver or gems and pearls, are prohibited from selling to any one but the emperor. He has twelve experts chosen for this business, men of shrewdness and experience in such affairs; these appraise the articles, and the emperor then pays a liberal price for them in those pieces of paper. The merchants accept his price readily, for in the first place they would not get so good an offer from anybody else, and secondly they are paid without any delay. And with this paper money they can buy what they like anywhere over the empire"

This way the emperor was able to fund the occupation of China without restrictions and unknowingly started inflation and hyperinflation because the supply of paper currency in the economy was over explosive. Thus we learn that the Chinese civilization of old was a thriving capitalist society.

It was the Ming Dynasty(1368-1644AD) that brought everything to an early end for China, in an effort to curb inflation and economic expansion, they stopped paper money completely and put an end to China's Trade. Talk about extremities, China went from boom to burst in it's creation of paper money.

Paper Money Collecting : A History of Paper Money

Before Paper Money

Before paper money, there was another form of trade exchange used by man it was called trade by batter. Today, we are so used to spending paper money: in some economies coins are even becoming obsolete (but that is a story for another day), some of us don't even spend paper money anymore instead our plastic cards are now a more convenient way to pay for goods. Having said this, in general terms the last few centuries has centered on paper money as a means of trade exchange in world economies.

I was thinking about how it all started, that is the use of paper money, and I started doing some initial research, the more I dug into the history of paper money the more excited I became, and why? Because I was now revisiting concepts and facts I had learned as a kid but never thought about it for at least the last 30 odd years!

Trade by batter! That was a concept I learnt many years ago. All civilizations it seems started out with trade by batter, that is, exchanging goods you do not need with those that you do need. This exchange method had it's flaws and soon people had to find other means of exchange, these included commodity goods, coins, paper money and ultimately electronic money.

Since trade by batter left you with perishable goods that you could not finish, or other goods you sometimes had no need for it became important to set aside some commonly popular goods such as salt, gold, cattle, tobacco , seeds and tea, as a means of exchange for goods. This had its own challenges as the value of these goods often fluctuated and so in the Greek era around 700BC it is believed that the first coins in the western civilization were made to exchange for goods.

Coins were used in most economies for a long while, even earlier than the Greeks, since 5000BC, yet these came with their own special set of challenges yet again. When a merchant got very rich and his trade dealings grew, it became quite cumbersome to say the least, carrying bags of strings of heavy coins around on long journeys. They became targets for thieves. Sometimes the metals for making the coins themselves were not readily available, or it could be a battle here, a war there that prevented the movement of the coins from one place to another. A solution had to be found somehow.

Thus the concept of paper money came into existence, first as a form of promissory note, whereby the coin equivalent will be paid at a later date. Where did this usage of paper money first emerge and when? Find out tomorrow.