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The development of paper money resulted from a larger historical process whereby the leaders of the Song Dynasty (AD 960-1279) had to devise new ways to compensate for the demand for metal currency that resulted from their expanding economy. In the end, although the Song Dynasty collapsed for a variety of reasons, their use of paper currency was adopted by later Chinese dynasties, eventually spreading to other Asian peoples. Despite having a profound impact on Asian economic history, the paper currency would be one of many inventions/discoveries that never left East Asia and was only discovered in Europe independently several centuries later.
===The How long did the Song Economy=Dynasty Last? ==
[[File: SongMap.png|300px|thumbnail|left|Map of the Song Dynasty at Its Height with Some of Its Major Cities and Neighbors Shown]]
The Song Dynasty is generally divided by scholars into the Northern Song (960-1279) and the Southern Song (1127-1227), although the Chinese would have seen no such division. The division resulted from pressures from militarily powerful enemies from the north who pushed the Song Dynasty further south. Still, for the most part, there was cultural and political continuity between the Northern and Southern Song. After the Tang Dynasty, the Song came about, which had ruled over a unified China, collapsed in AD 907, ushering in a more than fifty-year period of anarchy and political decentralization in China.
The Song leaders’ focus on merit proved beneficial to the dynasty's long-term goals as a new era of innovation took place in China, beginning in the late tenth century. In the eleventh century, the invention of the movable type press, probably by a scholar named Bi Sheng, replaced the more cumbersome woodblock press. Song officials quickly learned that not only could the movable type press be used to disseminate paper documents quickly, but it could also be used to print notes of financial exchange, which eventually became the first paper currency. <ref> Kuhn, p. 43</ref>
===The Why did the Song Dynasty Transition to Paper Currency in China=? ==
[[File: Song_dynasty_coins.jpg|300px|thumbnail|left|Coins from the Northern Song Period: the Holes in the Coins Are where the Strings Were Placed]]
During the Qin (221-206 BC) and the Han (206 BC-AD 220) dynasties that preceded the Song, the standard currency used was known as the <i>guan</i>. One guan usually equaled 1,000 round bronze coins with square holes that were threaded on a string as a full unit, or “string,” <ref> Glahn, Richard von. “Monies of Account and Monetary Transition in China, Twelfth to Fourteenth Centuries.” <i>Journal of the Economic and Social History of the Orient</i> 53 (2010) p. 465</ref> As the Song economy flourished, more and more copper strings were in circulation throughout the empire. The number reached 1.83 million strings in 1007 and five million by 1080, leading officials to add lead to the coins, which devalued the currency. <ref> Kuhn, pgs. 233-4</ref> Song economists knew that they could not further devalue the metal currency without adversely affecting the economy, so they developed the idea of paper currency.
Today, paper currency is not “backed” by gold, but gold and silver were the value backing most national currencies for most of human history. As the number of bronze coins began to diminish in Song China, the paper notes eventually became linked to silver as the hard currency backing the paper money. After 1160, the <i>huizi</i> was denominated in bronze coin strings, but backed by silver. <ref> Glahn 2010, p. 466, 501</ref> Although the creation of paper currency was truly revolutionary and proved to be a medium-term boon for the Song economy, its misuse proved to be one of the final nails in the Southern Song’s coffin.
== Why did the Song Dynasty stop using Paper Currency? ==The Song’s issuance of paper currency worked well for nearly 100 years. Still, after a while, China was faced with the same economic problem as the Romans before them and countless later countries – inflation. There were an estimated 650 million strings on the market in 1246, which led to an extreme devaluation of the <i>huizi</i> and eventually runaway inflation. The Song leaders made the same mistake as other world leaders have in similar situations by printing more and more money, which only aggravated the inflationary cycle. The Song paper currency collapsed in 1264, and the dynasty itself was wiped out just fifteen years later. <ref> Kuhn, p. 241</ref> Whether the inflationary cycle was a symptom or one of the reasons for the Southern Song’s demise is open to argument. Still, there is no argument that it did not help the overall situation – the Song leaders could no longer pay field armies nor pay the annual tribute to their more martial-minded neighbors in the north.
Whether the inflationary cycle was a symptom or one of the reasons for the Southern Song’s demise is open to argument. Still, there is no argument that it did not help the overall situation – the Song leaders could no longer pay to field armies nor pay the annual tribute to their more martial-minded neighbors in the north. ===The What was the Impact of Song Paper Currency=in Asia? ==
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The impact of the invention/discovery of paper currency during the Song Dynasty was profound , to say the least. Although the concept never made its way to the West, it indeed spread throughout east Asia during the Middle Ages. The Jurchen Jin Dynasty, which ruled northern China from 1127 to 1234, issued paper notes in the mid-1150s based on the notes the Song rulers originally issued in Sichuan and later issued other notes that were tied to silver, as the Southern Song had done. <ref> Glahn 2010, p. 469, 472</ref>
The Mongol Yuan Dynasty replaced the Song, and although foreign, the Yuan instituted a policy of cultural continuity, which included the use of paper money. Like the Jurchen Jin Dynasty, the Yuan rulers followed the Southern Song policy of tying their paper currency to silver. <ref> Glahn 2010, p. 483</ref> From China, the concept of paper money spread to other East Asian kingdoms such as Korea.
Perhaps one of the biggest impacts that the invention of paper money had in Asia was the diminishing value of bronze, copper, and iron coins. Once the Southern Song tied their paper notes to silver, the intrinsic value of metal coins declined, which resulted in much of those metals being exported to Japan. <ref> Glahn 2010, p. 501</ref> In fact, the use of paper currency in China hurt the metals industry in general as mining withered during the Southern Song. <ref> Smith, Paul J. “Do We Know as Much as We Need to Know About the Song Economy? Observations on the Economic Crisis of the Twelfth and Thirteenth Centuries” <i>Journal of Song-Yuan Studies</i> 24 (1994) p. 329</ref> The Song discovery of paper currency truly had a great impact on East Asia, but it would be centuries before Europeans discovered the benefits and drawbacks of using paper notes.
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