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.