What Was Paper Money Used for In Ancient China

Take a minute and try to come up with a list of things you can do today without money. It’s a guarantee that that list will be very short. The truth is, we have become very independent on money to get by each day. We need money to eat, to get an education, and health care. We need money to move from one place to another especially over long distances. We also need money for a start-up business. Whether directly or indirectly, we need money for a lot, so we can agree that money is important.

Money, however, is just a system through which we can acquire what we want. The paper currency used today wasn’t always in existence. Over the years, the currency has changed from barter trade to the use of coins to the paper money used today. The trendsetters of this evolution have been China. It’s been credited for inventing many of the currencies that were adopted around the world, both in the present and the past.

But have you ever held up a note and wondered how it came to be used? Have you ever wondered who invented paper money and why? In this post, we attempt to answer these questions, by discussing the origin of paper money, who invented it, and how it worked.

Who First Invented Paper Money?

It’s easy to point to Alexander Bell and credit him for creating the first telephone. It is, however, not that simple to point to one individual and credit them for inventing paper money. That’s because a group of people or more correctly, a nation, was responsible for coming up with paper money. That nation was China.

In the far past, people initially used to use bartering, where they would exchange one good directly for another, as the form of trade. Over time, people came to realize that it wasn’t easy to measure the equal worth of goods. For example, when exchanging chickens for cows, it’s difficult to gauge how many chickens were sufficient for one cow. Traders normally had to negotiate until a compromise was reached and both parties walked away satisfied.

Owing to this problem it was still the Chinese who came up with the earliest known coins as a solution to the problem. The popular coins known were mainly made of copper although there existed those made of silver, gold, and iron. The coins were mainly circular with a square hole that allowed one to string the coins making them easier to carry around. But although China developed the earliest known coin system, Lydia (today’s Turkey), a region in Western Europe is credited for being the first to use an industrial facility known as mint to mass-produce the coin currency that was used in Europe.

Why was paper money important in ancient china? Like barter trade, however, the use of coins had its downside. In large quantities, the coins became difficult to carry around especially over small distances. That was why the Chinese later came up with the first form of paper money. Initially, it was a promissory note that was used which wasn’t a true currency until the government decided to officially produce and distribute paper money as a currency. This currency was used for many years and failed and was later abolished in China by the time it got introduced to Europe. Sweden became the first country in Europe to produce and use paper money and from there it gradually became widespread all over the world.

Which Country Was the First to Use Paper Money?

Sweden was the first country to use paper money in Europe and later spread it to the rest of the world, through trade mainly and beginning with North America. Still, the fact is that China was the original inventor of paper money and so was the first country in the world to ever use paper money.

When Was Paper Money Invented in Ancient China and How Did It Work?

when was paper money invented?The use of paper money may probably date as far back as the use of paper itself. The earliest reported use of it was, however, during the Tang dynasty in 618AD. This type of paper money was first called, “flying cash” and it wasn’t an official currency. It was mainly used by rich merchants. It was known as flying cash because of its tendency to easily blow away in the wind. It was developed as a solution to carrying many coins over long distances for trade.

By the beginning of the Song dynasty, in Sichuan, the first printed paper money was developed by rich merchants and financiers. These notes had printed pictures of trees and people on them using red and black ink. As a way of avoiding counterfeiting, each bill had a seal of the issuing bank and a confidential mark. The notes were backed by the coins, in that you could convert the notes to hard cash at any point in the issuing bank, where you got the notes. This system became quickly widespread until 1023.

During this time, the government released an order that they were the only ones allowed to officially print paper money. As such, the Sichuan notes were withdrawn. By the 1100s, the government of the Song dynasty established factories in Anqi, Chengdu, Huizhou, and Hangzhou They were solely responsible for printing the paper money. Each factory used a different blend of fiber for their paper to avoid counterfeiting. The printing was done using wood blocks and six colors of ink.

First paper money: This new government institutionalized paper money was known as Jiaozi. It was successful because each note issued by the government was backed by hard cash. You could either exchange the notes for standard coins in any government-licensed deposit or use them to buy goods like salt in government-run shops. By this time paper money became as good as coins. This helped free more precious metal to be used in other areas.


In 1115, when the Chin occupied North China, it continued with the Song dynasty’s paper money policy. They established the Bureau of Paper Currency in Kaifeng, in 1154, to be the central body in charge of all the notes issued by the Chin. Their paper currency was divided into two denominations, the large one that consisted of one to ten strings of coins and the smaller one consisting of 1-700 standard coins. Unlike the Song dynasty’s currency, the Chin’s paper money was not backed by hard cash. This led to inflation due to counterfeiting although it was punishable by death. The currency lost its validity after seven years.

This was around the time the Yuan dynasty begun its reign under Mongol rule. In 1260, the Mongols printed their first paper money which they called Chao. Like the Chin, their currency wasn’t backed by hard cash. They produced increasing amounts of the money year in year out, leading to runaway inflation. The value of the paper money had completely depreciated. This remained the same even after the Ming dynasty came into power. By 1450, the use of paper money was dome away completely and the use of copper coins was reintroduced. It wasn’t until the 1890s, during the reign of the Qing dynasty, that new paper money called yuan, begun being printed again.


Every form of currency that has been developed over the years, by China and spread through the world, has had its advantages and disadvantages, including paper money. But it remains the longest currency to survive and be used across the world. Still, even today, money is continually evolving. We are gradually moving to a virtual currency with the invention of bitcoins and the ability to make online payments and transact money online.

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