Song China: Paper Money and Innovation

How China under the Song dynasty created the world's first government paper money, built a commercial economy, and later suffered inflation.

Between the 10th and 13th centuries, Song dynasty China was one of the most advanced economies in the world.

A commercial revolution

Rice farming improved with new, fast-ripening varieties.
Cities like Kaifeng and Hangzhou had over a million people.
Industries produced iron, porcelain, silk and paper.
Canals and ships carried goods across China and abroad.
Printing spread books and knowledge.

Paper money

Iron coins were heavy for large transactions. Merchants in Sichuan began using paper deposit receipts. In the early 11th century, the Song government took over, issuing jiaozi, the world’s first government-issued paper money.

Benefits

Easier trade over long distances.
Lighter than coins.

Problems

Governments printed more notes to pay for wars, causing inflation and loss of trust.
Later dynasties, including the Yuan under the Mongols, issued paper money widely; overprinting led to severe inflation.

Marco Polo

The Venetian traveller Marco Polo described Chinese paper money in the late 13th century, amazing Europeans who used coins.

Innovation

The Song era saw advances in gunpowder, compasses and printing. Some historians wonder why this dynamism didn’t lead to an industrial revolution in China.

The heavy coins

A merchant in Sichuan needs to pay a supplier a large sum. Carrying thousands of iron coins is impractical. Instead, he pays with paper notes, which the supplier trusts because the government stands behind them.

Thinking paper money began in Europe

China issued government paper money in the 11th century, centuries before Europe.

Key takeaways

Song China had a commercial economy with large cities and industries.
The Song government issued jiaozi, the world's first government paper money.
Overprinting later caused inflation.
Marco Polo amazed Europeans with descriptions of Chinese paper money.