Money in China


My original purpose in writing this essay was to seek the origins of money and markets – which I found in Greece and Rome. But then I found a challenge – China – where money appears to have been used every bit as early as in Greece, and which offered a civilisation where markets flourished in the towns but was somehow not a market economy; it was a society dominated by the Emperor and the Palace where the many of the principles of redistribution continued. In considering China therefore I need to look at its use of money in the economy of Imperial China.

The story of money in China can be divided into four episodes, the origins, copper money, paper money, and the use of silver. The origins of money in China began at about the same time as the use of the money in Greece, in the seventh or six centuries BC. At the time, China was divided between the Warring States and many of the states began to introduce money, each of its own kind. However they did not use circular coins of the type to which we are accustomed, but instead they used miniatures of the object which had previously been used as money, in particular spade money in the form of spades and knife money in the form of knives. And there were some circular coins, imitating cowrie shells which had been an early form of money. These early forms of money are very popular among collectors.

 Copper coins

WuZhu coin, courtesy BM

WuZhu coin, courtesy BM

Everything changed when Qin made himself the first Emperor of China, and in his campaign of unification he established a single currency for the whole of China. The exotic earlier coinages were replaced by round coins with a square hole at the centre. Technically they were very different to the traditions that sprang up in the west for they were cast, not struck. In the west our coins have always been struck, that is formed by using a hammer and anvil, where a blob of molten metal was placed on an anvil and then struck with a hammer with an engraving on it; Chinese coins however were cast in a mould, and then smoothed off. That is why they had a square hole at the centre, so they could be finished on a revolving lathe.

They also of copper, which meant they were of low value, and whereas in the West coins started with high-value silver and only later in the Roman Empire degenerated into copper, in China they were of low value copper from the start. As a result, they were normally strung together on a string of 1000 coins: such a string was supposed to be worth 1 ounce of silver. Perhaps this had its effect on the economy in that coins were essentially used for low value transaction. Taxes were in fact rarely paid in coins, but most often in grain or in bolts of cloth or silk, while another form of tax was the conscript or corvée labour which had to be rendered to the Emperor or his agents for a month a year.

The coins looked different too, for putting a hole at the centre meant that it was not feasible to portray a figure of the Emperor on the coin, so instead they were often inscribed with calligraphy. Calligraphy was considered one of the finest of all the arts in China, and some emperors were so proud of their calligraphy that they even signed their own coins.

The new coinage was a great success. It was tidied up in the Han Empire, and in the Tang Dynasty it was re-tariffed in 621 with new weights and new values, and the new coin is often considered the most elegant of all Chinese coins.

Paper Money

The third stage is one of the most interesting of all, because this is when China invented paper money. There are often two different takes on this remarkable achievement. The first is to say how clever the Chinese were to have invented paper money. It was in fact only possible because they had already invented printing by making engravings on wood blocks so it was technically possible to produce paper money. But the second and opposite reaction is to say how stupid the Chinese were, because having invented paper money they also invented inflation. The truth, as far as I can see it, lies somewhere between the two extremes.

Paper money was invented in Sichuan, the province in the far south-west corner of China where they always did things differently. The problem with Sichuan was that there were few copper mines in the area but there were lots of iron ore, so they had a tradition of using not copper coins but iron coins. However these were rather heavy, so they looked for a substitute and invented paper money. At first this was in the form of trading deposits: traders in one city paid in a string of cash and received a paper certificate whereby they could draw out a string of cash in another city. The system worked well at first because it was fully convertible – the certificates were backed by real money. It was established in Sichuan by A.D. 1024 and worked for a century.

However copper mining was also increasing and in 1073, 6 million strings of copper coins were minted – that is 6 billion coins– an amazing technical achievement. This was part of the reforms introduced by the proto-socialist reformer Wang Anshi (chancellor 1069 to 1076) who among his reforms to help the poor peasants, increased the money supply, both in copper and paper; one wonders whether the mild inflation that this must have introduced was one of the reasons that led to his downfall.

But the Song prosperity continued, and in 1120 the state nationalised paper money and made it a state monopoly. And this was the beginning of the problem. The 1120s were an interesting period of Chinese history. The Barbarians to the North were pressing down, and in 1126 the Jurchens captured both the capital Kaifeng and the Emperor, and the Northern Song dynasty came to an end – though the Song continued as a dynasty in the South. However against this political chaos, the economy was flourishing. The compass was invented and sea trade was increasing, and we learn that not only was copper coins and paper money increasing but the state began demanding payment of taxes in silver and in 1120, 18,000,000 ounces of silver were taken in taxes.

Paper money continued to be used for the next two centuries, presumably for much of the time with success. It is possible to distinguish at least two major inflations, the first in the Yuan dynasty, and the second in the middle of the Ming Dynasty.

The first took place at the end of the Yuan dynasty. The Yuan was the Mongol dynasty never properly accepted as a Chinese dynasty (1271 to 1368) and towards the end of their rule they were becoming increasingly unpopular and around 1350 there was a major inflation which may have hastened their downfall.


Hui_ziu paper money

Hui_ziu paper money

When the Ming Dynasty came to power in 1368, they at first reverted to sound money, and introduce a new copper coinage. However in 1375, paper notes were issued yet again, and in 1394 there was an edict against the use or indeed burial of copper coins, suggesting that inflation was taking off and that people were burying copper coins in response. The next quarter century saw the most the strongest and most violent inflation in the history of China, and yet this is an interesting period which in many ways saw the greatest glories of China.

This corresponds in with the rule of the Yongle Emperor (1402 to 1424), in glory the greatest of all Chinese emperors. He moved the capital to Beijing and in 14 madcap years constructed the ‘Forbidden city;’ as well as the magnificent Temple of Heaven; while simultaneously renovating and upgrading the Grand Canal, and building the Porcelain Pagoda in Nanjing. At the same time he was sponsoring the voyages of Zheng He all over the Indian Ocean. How could so much be achieved in such a short time? Well, the answer is inflation, which accelerated throughout the period reaching its highpoint in 1416 two years after his death at the young age of 46. It was left to his ultimate successor, the Wanle Emperor to cancel Zheng He’s voyages, and apply the brakes.

But how do you reduce inflation?  In 1425 a new shop franchise tax was introduced which had to be paid in paper; the rate was increased fivefold in 1429 but by 1432 it had been so successful in withdrawing paper money from the economy that the tax was reduced by a third and by 1442 it was down to 10% of the previous level. In 1450 the prohibition on the use of gold and copper coins was rescinded and by 1488 commutation of taxes into silver became the usual practice. The final triumph of silver came in 1580 when the great reformer Zang Jucheng introduced the Single Whip law in which the now obsolete labour corvée obligations were converted into money, and combined with all the other taxes, had to be paid in silver. The era of paper money was over: the era of silver was about to begin.


It is always something of a mystery why China was so reluctant to use gold and silver as part of the monetary system. Part of the trouble may have been that there is little gold and silver in China – the best sources of silver are in Japan, and when silver was first used, much of it was imported from Japan. But gold and silver were never used as coins, but instead in the form of ingots, and often small slivers sliced from ingots and used by weight. It was very similar to the Viking use of what is called hacksilber – indeed many of the finest late Roman silver was found crushed up ready to be cut up and use as silver bullion.

The situation changed in the 16th century when the Spaniards arrived in the Philippines and founded a trading station at Manila in 1571. They soon began importing silver in great quantities from Central and South America which they exchanged for the Chinese silks and porcelains which was so ardently desired in West. Mexican silver dollars were particularly appreciated and became to a considerable extent the main currency in use in China in the 18th and 19th centuries. Indeed this import became a worldwide problem in the 19th century when the majority of silver mined in south America made its way to China. Eventually in the 1890s the first silver coins were issued by the Chinese government – struck not cast. The West had finally arrived!

In the chaotic warlord period of the early 20th century, many of the warlords struck their own, one even struck coins showing a Ford motorcar, as he hoped to set up a dealership – perhaps even a factory. Right up until 1933 the currency was fixed to the silver and was therefore stable – indeed China came unscathed out of the Great Depression. But then in 1935 due to the American government’s buying of silver, the link was disastrously abandoned, and inflation took off. Indeed inflation was particularly runaway in the Civil War between 1945 and 1949, when the Nationalists who ran the currency, were blamed for the inflation and the Communists benefited from the chaos. One of the reasons why the Communist eventually won may have been that the Nationalists were held responsible for the appalling inflation. Since then, Communist China has had a tightly managed currency – and no inflation. It is only now that it is struggling to adopt to a freely floating currency and trying to make sure that their currency is a sound one.




23rd August 2015