Jiaozi (1024): China Issues the World's First Paper Money

The jiaozi was a paper note from Sichuan in southwest China that became the world’s first government-issued paper money. It began in the late 10th century as a receipt handed out by Chengdu merchants for deposits of heavy iron coins, and in 1024 the Song dynasty state took over its issue. The experiment pioneered banknotes, reserves and inflation centuries before any of them appeared in Europe.

Background: the problem of iron coins

Money in medieval China was normally round bronze coins with a square hole, strung together in “strings” nominally of 1,000 coins. After the Song conquered the Later Shu kingdom in Sichuan in 965, the region was kept on a separate currency of iron coins, partly to stop scarce copper flowing out of the core of the empire.

Iron coins were heavy and worth little each, so ordinary trade in a rich commercial region became burdensome. Paying for a bolt of silk or a large consignment of tea could mean carrying great weights of metal. Sichuan was also a busy hub for salt, tea, silk and paper, with growing demand for a lighter means of payment.

The Song economy as a whole was expanding fast. Population grew, cities multiplied and the government minted coins on a scale unmatched before the modern era, yet supplies of metal still could not keep up with commerce. Merchants across China already used bills of exchange and credit notes, such as the “flying money” of the Tang period, which let traders deposit cash in the capital and collect it in the provinces. Sichuan, with its awkward iron currency, was where these habits first turned into circulating paper money.

From merchants’ receipts to official notes

By the 990s, deposit shops in Chengdu were accepting iron coins and issuing paper receipts, known as jiaozi, often translated as “exchange medium”. The receipts were transferable: holders could use them to pay others, who could redeem them later at the shop.

Abuses followed, as some shops issued more paper than they held in cash. In the early 11th century the prefect of Chengdu, Zhang Yong, is credited with regulating the system by granting the right to issue jiaozi to a group of sixteen wealthy merchant houses. The notes were printed in a standard form with seals and secret marks to deter forgery.

The arrangement did not last. As some of the merchant houses weakened and failed to redeem their notes, disputes and lawsuits mounted. Officials debated abolishing the notes but concluded that trade in Sichuan could not do without them.

The state takes over, 1023–1024

In 1023, in the reign of Emperor Renzong, the government set up an official Jiaozi Bureau in Yizhou, as Chengdu was then administratively known, and banned private issue. The first official notes were released in 1024. This is the event usually treated as the beginning of state paper currency.

The bureau imposed rules designed to protect confidence. Notes were issued in fixed terms, at first of about two to three years, after which they were exchanged for a new issue. Each term had a ceiling, reported as 1,256,340 strings, and the issue was backed by a reserve of iron coin, commonly given as 360,000 strings. Notes were printed from plates in several colours with elaborate designs, inscriptions and seals.

How the jiaozi worked

For two generations the system was broadly stable. The notes circulated mainly within Sichuan and were valued because they were easier to carry than iron coin and could be exchanged on known terms. A small fee was charged on exchange, and paper money became part of everyday commercial life in the region.

Contemporary officials understood the principles involved remarkably well. Court memorials discussed how much paper the reserve could safely support, why notes lost value when too many were printed, and whether the system should be extended beyond Sichuan. An attempt to introduce notes in other regions in the later 11th century was short-lived, and for most of the Northern Song period the jiaozi remained a regional currency tied to Sichuan’s iron-coin economy.

The jiaozi depended on the technologies of its time. China had made paper since antiquity, and woodblock printing had spread under the Tang, as shown by the Diamond Sutra of 868. Printing in quantity, with official seals, turned these skills into an instrument of state finance.

Inflation and later paper currencies

The weakness of paper money soon appeared. From the 1070s, and especially during wars with the Tangut state of Western Xia on the northwest frontier, the government used notes to pay for military supplies. Terms began to overlap, issues multiplied far beyond the reserves, and the value of the jiaozi fell sharply.

In 1105–1107 the jiaozi was replaced by a new note called the qianyin, which also lost value. The Southern Song later issued the huizi, which from 1160 became the main paper currency of the lower Yangtze. The rival Jurchen Jin dynasty in the north had its own notes from 1154.

The Mongol Yuan dynasty went furthest, making paper the main currency of the empire from 1260 under Kublai Khan. Marco Polo described with astonishment how the Great Khan’s mulberry-bark paper was accepted everywhere. The early Ming continued the policy with the Great Ming Treasure Note from 1375, but overissue destroyed its value, and by the 15th century silver and copper coins had largely replaced state paper in China.

Myths and facts

Myth: surviving jiaozi notes can be seen in museums. No genuine Northern Song jiaozi is known to survive. Images often labelled as jiaozi show later notes, or a printing plate whose dating and identification are disputed.

Myth: Chinese paper money was simply unbacked “fiat” currency from the start. The early official jiaozi had a reserve, a fixed issue and expiry terms. Its later problems came from overissue to finance war, a pattern repeated by many later governments.

Myth: Tang “flying money” was already paper currency. Flying money, used from the early 9th century, was a draft that let a merchant collect a deposit in another place. It was not meant to pass from hand to hand as payment, which is what made the jiaozi different.

Fact: paper money began with merchants, not with the state. The government’s role in 1023–1024 was to regulate, monopolise and guarantee a practice that Sichuan’s traders had already invented.

By the numbers

Timeline

• 965: The Song conquer Later Shu; Sichuan remains on an iron-coin currency.
• 990s: Chengdu deposit shops issue private jiaozi receipts.
• Early 11th century: Zhang Yong licenses sixteen merchant houses to issue notes.
• 1023: The government creates the Jiaozi Bureau at Yizhou (Chengdu).
• 1024: The first official jiaozi notes are issued.
• 1105–1107: The jiaozi is replaced by the qianyin after severe inflation.
• 1160: The Southern Song makes the huizi its main paper currency.
• 1260: The Yuan begins issuing paper money as the empire’s main currency.

Why it matters

The jiaozi marks the point at which a state first accepted responsibility for paper money. It showed how printed promises could make trade easier, and how quickly they could lose value when governments printed too much. Every modern banknote stands in a tradition that began in 11th-century Chengdu.