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Paper money, from China
AD 1375–1425
‘Do you believe in fairies? Say quick that you believe. If you believe, clap your hands!’
The famous moment when Peter Pan asks the audience to save Tinkerbell by joining him in believing in fairies is an unfailing winner. That ability to convince others to believe in something they can’t see but wish to be true is a trick that has been effective in all sorts of ways throughout history. Take the case of paper money: someone in China centuries ago printed a value on a piece of paper and asked everyone else to agree with them that the paper was actually worth what it said it was. You could say that the paper notes, like the Darling children in Peter Pan, were supposed to be ‘as good as gold’, or in this case as good as copper – literally worth the number of copper coins printed on the note. The whole modern banking system of paper and credit is built on this one simple act of faith. Paper money is truly one of the revolutionary inventions of human history.
This object is one of these early paper money notes, which the Chinese called feiqian – ‘flying cash’ – and it’s from the time of the Ming, around 1400. Mervyn King, the Governor of the Bank of England, has this to say on the reasons for this invention:
I think in some way the right aphorism is that ‘evil is the root of all money’! Money was invented in order to get round the problems of trusting other individuals. But then the issue was – could you trust the person issuing the money? So the state became the natural issuer of money. And then the question is, can we trust the state? And in many ways that’s a question about whether we can trust ourselves in the future.
Most of the world until this time was exchanging money in coins of gold, silver and copper that had an intrinsic value you could judge by weight. But the Chinese saw that paper money has obvious advantages over quantities of coin: it’s light, easily transportable and big enough to carry words and images to announce not only its value but the authority of the government that backs it and the assumptions on which it rests. Properly managed, paper money is a powerful tool in maintaining an effective state.
At first glance, this note doesn’t look at all like modern paper money. It is paper, obviously enough, and it’s larger than a sheet of A4. It’s a soft, velvety grey colour, and it’s made out of mulberry bark, which was the legally approved material for Chinese paper money at the time. The fibres of mulberry bark are long and flexible, so even today, though it’s around 600 years old, the paper is still soft and pliable.
It is fully printed on only one side, a woodblock stamp in black ink with Chinese characters and decorative features arranged in a series of rows and columns. Along the top, six bold characters announce that this is the ‘Great Ming Circulating Treasure Certificate’. Below this there is a decorative border of dragons going all round the sheet – dragons of course being one of the traditional symbols of China and of its emperor. Just inside the border are two columns of text, the one on the left announcing again that this is the ‘Great Ming Treasure Certificate’ and the one on the right saying that this is ‘To Circulate for Ever’.
That’s quite a claim. How permanent can for ever be? In stamping the promise on to the very note, the Ming state seems to be asserting that it too will be around for ever to honour it. I asked Mervyn King to comment on this brave assertion:
I think it’s a contract, an implicit contract, between people and the decisions they believe will be taken in the years and decades to come, about preserving the value of that money. It is a piece of paper – there is nothing intrinsic in value to it – its value is determined by the stability of the institutions that lie behind the issuance of that paper money. If people have confidence that those institutions will continue, if they have confidence that their commitment to stability can be believed, then they will accept and use paper money, and it will become a normal part of circulation. When that breaks down, as it has done in countries where the regime has been destroyed through war or revolution, then the currency collapses.
And indeed this is exactly what had happened in China around 1350, as the Mongol Empire disintegrated. So one of the challenges for the new Ming Dynasty, which took over in 1368, was not just to reorder the state, but to re-establish the currency. The first Ming emperor was a rough provincial warlord, Zhu Yuanzhang, who as a ruler embarked on an ambitious programme to build a Chinese society which would be stable, highly educated and shaped by the principles of the great philosopher Confucius, as the historian Timothy Brook details:
The goal of the founding Ming emperor was that children should be able to read, write and count. It was an idea that he had that everyone should be literate, and he thought literacy was a good idea because it had commercial implications – the economy would run more effectively – and it had moral implications: he wanted school children to read the sayings of Confucius, to read the basic texts about filial piety and respecting elders, and he hoped that literacy would accompany the general re-stabilization of the realm. I would imagine a quarter of the population could read what’s on this note, which by European standards at the time was remarkable.
As part of this impressive political programme, the new Ming emperor decided to relaunch the paper currency. A sound but flexible monetary system would, he knew, encourage a stable society. So he founded the Imperial Board of Revenue and then, in 1374, a ‘treasure note control bureau’. Paper notes began to be issued the following year.
The first challenge was fighting forgery. All paper currencies run the risk of counterfeiting, because of the enormous gulf between the low real value of the piece of paper and the high promissory value that appears on it. This Ming note carries on it a government promise of a reward to anyone who denounces a counterfeiter. And alongside this carrot, there was a terrifying stick for any potential forger:
To counterfeit is death. The informant will receive 250 taels of silver and in addition the entire property of the criminal.
The much bigger challenge was to keep the worth of the new currency intact. Here, the key monetary decision of the Ming was to ensure that the paper note could always be converted into copper coins – the value of the paper would equal the value of a specific number of coins. Europeans called these coins quite simply ‘cash’ – they are round coins, with a square hole in the middle, which the Chinese had already been using for well over a thousand years. One of the things I love about this Ming note is that right in the middle of it is a picture of the actual coins that the paper note represents. There are ten stacks of coins with a hundred in each pile, so a total of a thousand cash or, as it says in writing on the note, one guan. You can get some idea of just how useful and welcome this early paper must have been when you compare carrying the paper around with the actual coins represented. Pictured here is 1,000 cash: 1.5 metres (5 feet) of copper coins all on a piece of string. They weigh about 3 kilos (7 lbs), are extremely cumbersome to handle, and are very difficult to subdivide and pay out. This note must have made life, for some people, very much easier. A contemporary wrote:
Whenever paper money is presented, copper coins will be paid out, and whenever paper money is issued, copper coins will be paid in. This will never prove unworkable. It is like water in a pool.
The middle of the note shows a string of ten stacks of coins
It sounds easy. But the words ‘never prove unworkable’ would come back to haunt the Ming emperor. As usual, the practice turned out to be more complicated than the theory. The exchange of paper for copper, copper for paper, never flowed smoothly, and, like so many governments since, the Ming just couldn’t resist the temptation of simply printing more money. The value of its paper money dived, and fifteen years after the first Ming banknote was issued, one official noted that a 1,000-cash note like this one had plummeted to an exchange value of a mere 250. What had gone wrong? Mervyn King explains:
They didn’t have a central bank, and they issued too much paper money. It was backed by copper coin, in principle – that was the idea behind it. But in fact that link broke down, and once people realized the link had broken down, then the question of how much it was worth was really a judgement about whether a future administration would issue even more, and devalue its real value in terms of purchasing power. In the end this money did become worthless.
But I don’t think paper money is always doomed to failure, and I think if you’d asked me four or five years ago before the financial crisis I would have said, ‘I think we’ve now worked out how to manage paper money.’ Perhaps in the light of the financial crisis we should be a bit more cautious, and maybe – to quote Zhou Enlai, another great Chinese figure, when asked about the French Revolution: ‘Well, it’s too soon to tell’. Maybe we should say about paper money after 700 years it is perhaps too soon to tell.
Eventually, around 1425, the Chinese government gave up the struggle and suspended the use of paper money. The fairies had fled – or, in grander language, the faith structure needed for paper money to work had collapsed. Silver bullion became the basis of the Ming monetary world. But however difficult to manage, paper currency has so many advantages that inevitably the world came back to it, and no modern state could now think of functioning without it. And the memory of that very early paper currency of the Ming, printed on Chinese mulberry paper, lives on today in a little garden in the middle of London. In the 1920s the Bank of England, in conscious homage to those early paper notes, planted a little stand of mulberry trees.