How did paper money help China's economy?
The use of paper currency was initiated by merchants. To avoid having to carry thousands of strings of coins long distances, merchants in late Tang times (c. 900 CE) started trading receipts from deposit shops where they had left money or goods.
They would issue paper notes that were convertible for copper. That way, when merchants needed ready money, they could go to the bank for a stack of bills instead of hauling around satchels of heavy metal. These bills would then circulate in the market until someone had a need for hard currency.
As a cheaper and more convenient material than bamboo, wood, or silk, paper helped spread literature and literacy but it was used for many other purposes from hats to packaging. The material was made finer over the centuries, was traded across Asia and was used in the first paper money from the early 12th century CE.
The printing of paper money in China had a significant impact on the rice production and trade industries since the currency was required to conduct business. In addition, the paper currency had benefited traders in that it is lighter than coin money.
But paper money itself also was a new technology—a tool that made trade easier. This led to an increased exchange of ideas and more economic specialization, which in turn meant people could grow more food and make more stuff. Paper money helped China get richer.
China in the 11th century had the world's first paper money—which existed both in the form of government-issued and merchant-issued paper. This was for large transactions. Ordinary people mostly used bronze coins, but those were far too heavy for large transactions.
It became easier for Chinese merchants to buy and sell lots of goods, as paper money could be exchanged for goods, reducing the need to carry heavy copper coins. This made the trade process smoother and easier.
Buddhist, Taoist, and Confucian texts were all produced on paper during this time. Paper was also an extremely valuable resource for merchants and traders who used this light and portable material as a means of recording their business.
According to Endymion Wilkinson, one consequence of the rise of paper in China was that "it rapidly began to surpass the Mediterranean empires in book production." During the Tang dynasty, China became the world leader in book production.
618 to 907), they could have hardly foreseen such difficulties. At the time, the introduction of notes that could be redeemed for coins at the end of a long journey was a boon. Paper cut down on traders' loads, enabling them to transport large sums of money over sizable distances.
Is China still using paper money?
In the early 20th century, China started using a combination of banknotes and coins as money, which by then had become standard across the world. It remains the standard today, although electronic payments are threatening to make banknotes and coins obsolete.
The Chinese issued the world's first paper money
They could be carried on strings, but paper money was even easier to handle. This early paper money was in use when Marco Polo visited Kublai Khan in the 13th century. The note, called a kua, is the equivalent of 100 coins and dates from the Ming Dynasty, A.D. 1368–99.
ADVANTAGES OF PAPER MONEY
The supply of it can be easily controlled by governments, meaning that more can be printed if there is demand, but less can be produced if demand falls. This essentially means that a government can align its printing practices with the specific requirements of its economy at any given moment.
It had two main advantages over money made out of silver, gold, copper or iron: It was easier to carry around and the copper and iron could be saved for use in everyday objects. Names and seals were printed and written on paper money by the government officials who issued it.
The top lot was a China / People's Republic 1951 10,000 Yuan graded PMG 40 Extremely Fine (CSS81, lot 87) that realized HK$1.74 million (about $221,700 USD). This example of a high denomination note that is known as “Running Horses” is regarded as one of the greatest treasures in Chinese paper money.
Likewise, paper currency allowed society to function more easily on a wider scale. Because paper currency was much lighter than heavy metal coins, it made international trading more convenient. Today, the decentralization of digital currency may lead to an even wider global economy.
Paper Money
About a thousand years ago, the Chinese realized that metal coins had a few problems. First, they can be very heavy in large numbers. Second, you need the metal to make them. They decided to solve this problem the same way we do today—by printing paper money for larger amounts.
Paper money was invented in China in the 7th century, but the base unit of currency remained the copper coin. Copper coins were used as the chief denomination of currency in China until the introduction of the yuan. Currently, the renminbi is the official currency of the People's Republic of China (PRC).
Maintaining price stability
Typically, countries set the desired inflation target and the central bank implements the necessary policies to achieve the said target. Usually, China keeps its. If the inflation rate is too low, central banks can issue more currency and decrease the interest rate.
For several centuries, the problem of inflation due to paper money was kept largely at bay. However, during the late Qing Dynasty, following the Taiping Rebellion (1851-1864), the government collapsed and paper money was once again devalued by massive inflation.
Why did Chinese paper money fail?
Mongol Influence
However, the paper money was not backed by gold or silver. The short-lived Yuan Dynasty printed increasing amounts of the currency, leading to runaway inflation. This problem was unresolved when the dynasty collapsed in 1368.
Historical records trace papermaking to around 105 CE, when Ts'ai Lun, an official of the Chinese Imperial Court, created a sheet of paper using mulberry bark and other fibers. After his innovation, the first Chinese papers were made from a combination of recycled fishing nets, bamboo, mulberry bark, silk, and hemp.
The environmental effects of paper production include deforestation, the use of enormous amounts of energy and water as well as air pollution and waste problems. Paper accounts for around 26% of total waste at landfills.
The Yuan dynasty built new and reestablished older trade links with the outside world through overland as well as maritime routes. Foreign goods filled the coastal cities and new ideas and technologies flowed in, resulting in robust creative enterprises.
Meanwhile, rulers of the Yuan Dynasty adopted an open policy to develop the economy. On the one hand, more ports in the coastal areas were opened for goods transport; on the other hand, foreign goods were welcomed to enter the domestic market.
