Paper money, a Chinese invention?

First paper, then paper money. This is pure logic. It is hardly surprising that the first notes or
better, the first paper money, appeared in China. With the invention of paper and printing on its
account, this country was almost destined to produce the first paper money.
For centuries the mulberry tree has been cultivated in the Valley of the Yellow River (Shang period,
18th to 12th century BC). The first traces of paper date back to the 2nd half of the 1st century BC but
then it was not used as writing material. For their traditional calligraphy with brushes they used linen,
hemp, bamboo (cane) and bark of the mulberry tree. Important progress has been made between the
2nd and 4th century AD: Thanks to the use of soaked bast of the mulberry the quality of the pulp
significantly improved and paper became less heavy. The improvement was such that paper gradually
replaced the former bamboomats. Clerical texts and reports for the Court were henceforth written on
paper but still in a vertical direction. This centuries-old way of writing is probably a result of writing on
strips of bamboo which were tied together.

From paper to paper money

Paper fabrication during the Han Dynasty (206 BC – 220 AD)

During the Tang Dynasty (618-907) there was a growing need of metallic currency, but thanks to the
familiarity with the idea of credit the Chinese were ready to accept pieces of paper or paper drafts. This
practice is derived from the credit notes used by merchants for their long-distance trade.
Due to this lack of coins, also the dead had to change their habits of taking a coin with them to pay
their passage to the other world. About the 6th century notes replaced coins as burial money. May we
consider this as a real means of payment? Of course not, but it is remarkable that also here paper
replaces very smoothly the copper coins that were used before.
At the end of the Tang period, traders deposited their values with their corporations. In exchange, they
received bearer notes or the so-called hequan. Those hequan were a real success and the idea was
exploited by the Authorities. Merchants were invited to deposit henceforth their metallic money in the
Government Treasury in exchange for official “compensation notes”, called Fey-thsian or flying
money.
During the Song Dynasty (960-1276) booming business in the region of Tchetchuan likewise resulted
in a shortage of copper money. Some merchants issued private drafts covered by a monetary reserve
which initially consisted of coins and salt, later of gold and silver. Those notes are considered to be the
first to circulate as legal tender. In 1024 the Authorities confer themselves the issuing monopoly and
under Mongol governement, during the Yuan Dynasty (1279-1367), paper money becomes the only
legal tender. During the Ming Dynasty (1368-1644) the issuing of notes is conferred to the Ministry of
Finance.
On all notes issued between 1380 (13th year of the Emperor Hung Wu’s reign) and 1560 the names of
Hung Wu and the Minister of Finance can be read. Those notes were issued in values of 100, 200, 300,
400 and 500 wen and 1 kuan or 1000 wen. Thus one kuan had the same value as 1000 copper coins or 1
liang (1 tael) of silver; 4 kuan equalled 1 liang of gold.
Unfortunately, those notes were issued continuously without redrawing from circulation the old ones.
This practice of course led to an inflationary spiral: in the beginning, in 1380, one guan was worth 1000
copper coins, in 1535, one guan valued merely 0,28 copper coin!

Note printed on dark slate paper of the mulberry tree

The note in the showcase dates back to the same period. It is fairly large (340 x 221 mm) and printed
on dark slate paper of the mulberry tree. The inscriptions in the heading read the name of the issuer and
the name Hung Wu, the founder of the Dynasty. The value of Yi guan (or 1 kuan) is represented by the
two characters and by ten heaps of coins just beneath them. The inscriptions left and right of the value
there read as Note of the great Ming dynasty and Circulating within the Empire.
In the inferior cartouche, a long inscription, which must be read vertically from right to left, gives more
information on the note : Printed by imperial authorisation by the Minister of Finance (2 columns to the
right); The note of the Great Ming Dynasty circulates together with copper money. Forgers will be
decapitated and those who can give information which leads to the arrest of forgers are offered a
reward of 250 liang of silver on top of the belongings of the forger (4 central columns); (made in the
era) Hung Wu ___year ___month __ day (left column). The blanks had to be filled in by hand but this
was never put into practice. As a result the name “Hung Wu” figures on the notes even after the end of
his reign. The borders are attractively designed with arabesque style flowers and dragons.

The discovery of Chinese paper money in Europe

In the travel accounts of the Venetian traveller Marco Polo the reader becomes familiar with the
fascinating world of paper money production. This money has been put into circulation during the Yuan
period by the Mongol chief Kublai Khan (1214-1294) : “It is in the city of Khanbalik that the Great
Khan possesses his Mint. (…) In fact, paper money is made there from the sapwood of the mulberry
tree, whose leaves feed the silk worm. The sapwood, between the bark and the heart, is extracted,
ground and then mixed with glue and compressed into sheets similar to cotton paper sheets, but
completely black. (…) The method of issue is very formal, as if the substance were pure gold or silver.
On each sheet which is to become a note, specially appointed officials write their name and affix their
seal. When this work has been done in accordance with the rules, the chief impregnates his seal with
pigment and affixes his vermillion mark at the top of the sheet. That makes the note authentic. This
paper currency is circulated in every part of the Great Khan’s dominions, nor dares any person, at the
peril of his life, refuse to accept it in payment.”
Marco Polo was amused at the thought that whereas the alchemists had struggled vainly for centuries to
turn base metals into gold, the Chinese emperors had very simply turned paper into money. Once back
home, Marco Polo amply reported about his experiences and adventures in the Chinese Empire but
when he talked about paper money he only met disbelief. It is hardly surprising that it took a few more
centuries before paper money was introduced in Europe. In fact, if we keep to the concept of paper
money as notes issued with a monetary reserve as a warranty, the first Chinese notes date from the 10th
century. Which means a headstart of no less than seven centuries on the West!
Coralie Boeykens
Museum guide
Sources:
• Museum of the National Bank of Belgium, A story of money, 2006, p. 21.
• Kann E., History of Chinese paper money (ancient), International Banknote Society, 1963.
• Marsh G., “Chinese note of Ming Dynasty rates among oldest paper currency known”, in Coin
World, december 1, 1965, p. 56.
• Reinfeld F., The story of paper money, Sterling publishing CO., Inc., 1957.
• Narbeth C., Collecting paper money, Seaby London, 1986.