How Did the Creation of Paper Money during the Song Dynasty Impact China

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Emperor Taizu (reigned AD 960-967), the First Song Emperor

Today, most people take paper money for granted, and few know how its use originated and developed throughout history. In Western countries such as the United States, paper money has a relatively short existence going back to the seventeenth and eighteenth centuries. Still, in China, paper currency first began circulating over 1,000 years ago.

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.

How long did the Song Dynasty Last?

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.

During the period of decentralization, five dynasties claimed power, one of which was known as the “Later Zhou.” In 960, the Later Zhou was led by a child emperor protected by a palace army led by a man named Zhao Kuangyin. After serving as a loyal commander for some time, Zhao Kuangyin decided he wanted to rule. Hence, he deposed the child emperor in 960 and was proclaimed by his followers as Taizu (reigned 960-976), the first of the Song emperors. [1]

Taizu set up the Song capital at Kaifeng, where it would remain until the Northern Song collapse. Although the Song had to contend with powerful and sometimes bellicose neighbors, it differed from many pre-modern Chinese dynasties because it deemphasized or even eschewed martial culture. Song emperors placed the civil branch over the military, a direct byproduct of their stringent following Confucian philosophy. The Song was also different from many previous Chinese dynasties because merit was rewarded over nepotism: officials were chosen due to their knowledge of the Confucian canon, not their family connections. [2]

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. [3]

Why did the Song Dynasty Transition to Paper Currency?

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 guan. One guan usually equaled 1,000 round bronze coins with square holes that were threaded on a string as a full unit, or “string,” [4] 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. [5] 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.

Although the Song emperors first introduced paper currency, there are no extant examples. The development of paper currency came about quite naturally. It resulted from high demand for bronze, copper, and iron, making various denominations. Along with the diminishing supply of metals used for currency, Chines scholars developed the new economic idea that held paper money as a means of payment and exchange, not as a value in itself. [6]


The issuing of paper currency in Song China was as much of a process as the paper currency invention itself. There was no single currency until the end of the dynasty, but instead, there were several currency zones throughout China. The first paper currency used was the jiaozi, which was first issued in Sichuan. [7] The use of the jiaozi proved to be quite successful, leading to the creation of numerous other paper currencies, the most widespread of which was the huizi.

The huizi was a paper bill that became the Southern Song's standard currency in 1160. At first, one huiz equaled one “string,” but after a while, smaller dominations were created of 200, 300, and 500 coins strings. [8] The Song’s use of the huizi was accompanied by two major details that were intended to make the bill enduring.

The Southern Song rulers enacted the first policy concerning the huiz was mandating fixed terms of expiration. Between 1168 and 1264, the Southern Song emperors issued eighteen new huizi bills, primarily to mitigate counterfeiting and control inflation. [9] Routinely destroying the old notes certainly helped the Song rulers avoid economic problems, which was also helped by linking the paper currency to silver.

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 huizi was denominated in bronze coin strings, but backed by silver. [10] 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 huizi 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. [11]

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.

 What was the Impact of Song Paper Currency in Asia?

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. [12]

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. [13] 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. [14]

In fact, the use of paper currency in China hurt the metals industry in general as mining withered during the Southern Song. [15] 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.


  1. Kuhn, Dieter. The Age of Confucian Rule: The Song Transformation of China. (Cambridge, Massachusetts: The Belknap Press of Harvard University Press, 2009), p. 19
  2. Kuhn, pgs. 31-39
  3. Kuhn, p. 43
  4. Glahn, Richard von. “Monies of Account and Monetary Transition in China, Twelfth to Fourteenth Centuries.” Journal of the Economic and Social History of the Orient 53 (2010) p. 465
  5. Kuhn, pgs. 233-4
  6. Kuhn, pgs. 234-6
  7. Glahn, Richard von. “Re-examining the Authenticity of Song Paper Money Specimens.” Journal of Song-Yuan Studies 36 (2006) p. 80
  8. Kuhn, p. 239
  9. Glahn 2006, p. 81
  10. Glahn 2010, p. 466, 501
  11. Kuhn, p. 241
  12. Glahn 2010, p. 469, 472
  13. Glahn 2010, p. 483
  14. Glahn 2010, p. 501
  15. 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” Journal of Song-Yuan Studies 24 (1994) p. 329

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