History of Money and Financial Crises in China-4





Mexican eagal coin

Spain coin

Since 15^th century, foreign traders started to use silver coins from their own countries to purchase silk, tea and china from China. Several kinds of them were introduced to China. At one time, silver coins from Spain and Mexican were even the main currencies in circulation. But it was until the 1850s that China started to forge their own silver coins.

After signing the Treaty of Nanking, Qing government was obliged to pay war reparations to Britain in a total sum of 21 million silver dollars. The Qing government didn’t have enough silver dollars in stock, and was forced to start forging coins on their own. The first machine-made silver coin in China was the “dragon coin” in 1889.




A bank run in 1940s

In 1853, suffering from severe financial constraints, Qing government deliberately created inflation, hoping this would ease their problems. They started by issuing debased coins that were one third of its standard weight. At the same time, they issued paper notes without proper reserves. Apart from the notes issued by government, other banks and financial institutes were also authorized to issue their own bank notes. With no restrictions what so ever, people had no faith in the credibility of those notes. A rumour started on February 1853, said that the notes would become invalid soon. This started a series of bank runs. Nearly 200 banks collapsed on 15^th February alone. The whole financial market was in chaos and created an even bigger problem for Qing government.

History of Money and Financial Crises in China-3

paper note from
Yuan Dynasty
equals 200 units of coins

When the descendants of Genghis Khan ruled China, paper notes were their choice of currency. They were rather prudent at the beginning, but a couple of decades later, after the royalties fully explored their privileges, the fiscal revenues were not able to cover the enormous military expenditure and royalties’ luxurious lifestyles. They discarded the conservative monetary policy, and began to over-supply the paper notes. The inflation and several natural disasters made people’s lives insufferable. The emperor of Yuan Dynasty was overthrown, and their 98-year of ruling was ended.

Though issuing paper notes was a step-up in the history of money, every ruler used it as a method to exploit common people. In the first years of Ming Dynasty, paper notes along with copper coins formed their monetary system. But there was no limitation on how much money to put into circulation, and no reserve necessary. After causing a severe inflation, the paper notes monetary system collapsed, and silver-based currency became popular.

Silver ingot

The last dynasty in China, Qing, used silver ingots as principal currency in the first 100 years of their ruling. Large business transactions were all carried out using silver ingots. Taxes were also paid in silver. Since the central government didn’t have a standard for how to mint silver, the silver ingots in circulation were in different shapes, quality and weight. They had to be melted and purified before they can be collected as taxes. Some government officials conspired with silversmiths to exploit people by downplaying the quality and weight of their silver, and a lot of complicated social problems were the results of this kind of malpractice.

History of Money and Financial Crises in China-2

copper coin in Tang Dynasty

Since 618AD, China was ruled by the emperors of Tang Dynasty. They used this kind of copper coins as currency. From then on this shape of coins were used for over a thousand years , only with different carvings on them in different time.

1000 Coins

They usually put 1000 coins together and put a string through the holes in the coins. This 1000 coins had a purchasing power roughly equal to 15~20GBP. That was obviously very heavy to carry around if a businessman wanted to buy something expensive or trade in other areas.


As a result, in the years around 810AD, they invented the “flying money”. A businessman could hand the money to a local government agency, in return he would get a certified document of proof and take this document to another place’s agency to withdraw the same amount of money (exclude 3% of service charge). This was one of the first forms of bank drafts, the document was destroyed once it was used.


Later in Song Dynasty, 960AD, due to the shortage of bronze, the value of copper coins were even less than that of copper wares. A lot of people melted coins for the copper.

Jiaozi, the words on it says that
anyone who saw this paper note
 should consider this as the
equivalent of 77,000 unit of coins.

In hope of reduce the demand of copper coins, the central government issued a new kind of iron coins. It took people great pains to carry out business transactions with them, because the purchasing power of iron coins were so low that it would take 15kg of iron coins to buy a roll of cloth.


To deal with this problem, and inspired by the “flying money”, 16 wealthy businessmen together formed a financial institution that issued their own paper note--Jiaozi (交子) . Similar to the “flying money”, it only served the purpose of bank drafts in the early years. But later on, the central government took over the printing and issue of paper notes. Jiaozi then was considered the official currency and used not only in China but also in surrounding countries.

bad bad man

At first, the central government was very conservative about issuing the paper notes. 28% of iron coins must be reserved to back up the government’s credibility. Every 3 or 4 years the government collected the old paper notes and issued new ones. It helped to stabilize the economy during the first 50 years of Song Dynasty. However,  a very greedy and corrupted high-ranking official took over the control of government. He started to printing paper notes abusively, and used it as a method to gather wealth for him own. That created a series inflation, many families were bankrupted by his doing, and as a result, many of them joined a uprising against him and the government. This brought the end to Song Dynasty. 

History of Money and Financial Crises in China

 In Chinese characters, those describe something of value often include a part, 贝, which is the character for seashells. (货, means commodity;贵, means valuable, expensive; 资, means wealth, 资产 as a word means asset.) Therefore we can deduce that the first money used in China was shells. Later when the supply of seashells could no longer keep up with the demand as the trade started to grow, Chinese people started to cast copper into the coins with the shape of shells as a substitute.

Since 206BC, the first few emperors of Han Dynasty distributed the power of casting money among several vassal states. However the vassal governments abused this power, and caused a series of problems. The confusion about the standards of coinage, and the inflation caused by the excessive amount of coins casted by the local government, those had been threating the revenue of central government. Therefore the sixth emperor of Han decided to unify the standards of coinage and collected the power of casting coins back to central government. This kind of coinage, 五铢钱, was later adopted by other dynasties and used for more than 600 years. (五,five; 铢, measurement of weight, 1 unit of铢 equals 0.65g; 钱,means money.) At the time, it even had effects on the coinages of other countries like Japan, Korea and Thailand.