China and the Far East
Paper Money
When the Song dynasty opened up 'free markets', commerce
developed and there was a greater demand for money in circulation. But China
was divided into regions using different, sometimes incompatible currencies.
Some regions even forbade the export of bronze coins. Paper money, in the
form of exchange notes, was a way of solving this problem of interregional
exchange. Moreover, a number of the regions were using large, low-value iron
token-coins, which were very inconvenient to use in great numbers. Foreign
military pressure during Song times was also stretching government, finances;
paper money could be used to supplement official expenditure.
Prices soon came to be expressed in terms of paper money, and bronze coins
virtually became a commodity. Furthermore, as sales of tea and salt were very
profitable, the vouchers that merchants received as proof of payment of tolls on
the way to the capital for redemption at the tea and salt warehouses themselves
became a form of money. All these early forms of paper money were privately
issued remittance, credit or exchange notes with a date limitation. The first
paper money as we know and use it today (i.e. officially issued exchange notes,
with no date limitation) were the Exchange Certificates issued by the Jin in
1189. During the Mongol Yuan dynasty (1206-1367) paper money was used
exclusively, as gold and silver as well as copper cash were not permitted in circulation.
In the thirteenth century the Mongols subjugated Korea and forced paper
money on the region. It is an interesting point that, while the Mongols were
successful in issuing paper money where cash coins had previously been in use,
their attempts to circulate paper money in western countries, such as Iran, were not so effective.
The effect of the growing acceptance of paper money in China was to drive
cash coins out to Japan, Korea, Vietnam and South-east Asia. In 1074 the ban on
exporting Chinese coins was lifted (previously export of even one string brought the death penalty).
The greatest demand for Chinese coins came from Japan where, by the late
tenth century, people had lost confidence in Japanese coins, preferring to use
imported Chinese currency. With extensive official and private importing going
on, often involving an illicit trade conducted by pirates, it was difficult for the
Japanese government to maintain its authority over money. In 1179 the
government tried to fix prices in terms of Chinese coins, and fourteen years later,
in 1193, they were forced to ban all use of Chinese coins, since they could not
control the amount and types of coins in circulation in Japan. By the early
fourteenth century some of the Japanese purchases of Chinese coins were being paid
for by shipping swords and sulphur to China in a form of tribute trade.
The export of coins to Japan and elsewhere also had repercussions in China:
in the Southern Song period (1127-1279) prices expressed in paper money
increased, and it became profitable to melt down copper coins to make objects
such as copper utensils and musical instruments. The reduced quantity of
copper coins of this period also reduced the purchasing power of paper money.
When the Korean Yi dynasty copied Chinese Ming dynasty paper money in
1401, the effect was disastrous. Once again, paper money drove coins out of
circulation, mostly to Japan, and the Koreans had to resort to using cloth as money.
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