Era 03 · 618 AD — 1870

Paper Money

What backs it

Backed by state promise

Pulse cycle

4.5s

Paper money is a piece of paper that says, on its face, that it can be exchanged for something else. That something else — usually metal — stays in a vault. The paper circulates, the metal doesn't. The entire economy becomes a bet on whether the issuer can still deliver the metal. For most of paper's history, they couldn't.

Events in this era

~806 AD

Tang dynasty flying money

Under Emperor Xianzong, Chinese tea merchants began depositing copper coins at the capital in exchange for paper receipts called 'feiqian', or flying money, redeemable at regional offices across the empire. The system solved a physical problem: a thousand copper cash weighed roughly eight pounds, and long-distance traders could not carry enough to fund caravans. Within a century, the receipts themselves were circulating as currency. By the Song dynasty in 1024, the government had taken over issuance entirely with the 'jiaozi', the first true state-issued banknote.

First paper money in recorded history

1024

Song dynasty jiaozi

In 1024 the Song dynasty's central government took over the issuance of paper currency from a private merchant guild in Sichuan and began printing the jiaozi — the first true state-issued banknote in recorded history. Earlier Tang flying money had been a private receipt for deposited copper. The jiaozi was different: the state itself promised redemption, the state itself controlled the supply, and the state itself bore the consequences when too many notes were printed. By the late 1100s, the supply had been over-issued and the jiaozi traded at roughly 10 percent of face. The pattern that began in Sichuan in 1024 has run, with regional variations, in every fiat currency since.

First state-backed paper currency in history

1690

Massachusetts Bay Colony notes

The colony issued 7,000 pounds in paper notes to pay soldiers returning from Sir William Phips's failed expedition against French Quebec. The treasury was empty and the troops were threatening mutiny. The notes promised redemption in silver from future tax revenue, eventually. They were the first government-issued paper currency in the Western world, predating the Bank of England by four years. The notes traded at a discount to silver within months, a pattern every subsequent paper currency has repeated at some point in its history.

Template for the US dollar system

1271 — 1295

Marco Polo documents Yuan paper money

Marco Polo spent 24 years in Kublai Khan's Yuan China. He returned to Europe with detailed descriptions of a paper currency that his European contemporaries found almost unbelievable. The concept of state-backed paper money took another three centuries to take root in Europe, not because Europeans could not understand it, but because no European state was strong or centralized enough to make such a currency credible.

First detailed European documentation of paper currency

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