CHAPTER TWO PAPER MONEY IN YUAN CHINA [. .] Et toutes cestes cha[r]tre sunt seellés dou seel dou grant sire. Et en fait faire si grant quantité que tuit le tresor dou monde en paieroit. Et quant cestes chartre sunt fait en la mainiere que je vos ai contés, il en fait faire tous les paiemant et les fait despendre por toutes les provences et regnes et teres la ou il seignorie. Et nulz ne le ose refuser a poine de pardre sa vie. [. .]1 The use and widespread circulation of paper money in Mongol China was made possible by the fact that already under the precedessors of the Yuan—the Song (960–1279) and Jin (1115–1234) dynasties—paper notes had been introduced as official currency to form part of a monetary mix. Because it suffered from chronic shortages of bronze coins, i.e. for its base currency, the Song dynasty expanded its monetary supply by the creation of bills of exchange, new forms of credit, and paper money, while at the same time pursuing a bullionist foreign trade policy.2 Besides the revolu- tions in farming, water transport, market structure and urbanisation as well as science and technology, the revolution in money and credit consti- tuted one of the five remarkable and unique developments that character- ized the history of mediaeval and early modern China.3 While attempting to operate on a basis of a unified currency system with a bronze-coin standard, the Northern Song (960–1127) government retained a separate sphere of iron coinage in Sichuan. Such coinage was also prescribed from the 1040s onwards in a northern belt zone that was created in order to prevent the outflow of bronze coins to the enemy states of the Tangut Xixia (1038–1227) and Khitan Liao (916–1125) king- doms. Other measures taken to increase the supply of currency were the promotion of mint metal mining, especially copper, prohibitions against 1 Luigi Foscolo Benedetto, Marco Polo, Il Milione, Firenze: L. S. Olschki (Comitato geografico nazionale italiano; 3), 1928, p. 92. 2 See Richard von Glahn, Fountain of Fortune: Money and Monetary Policy in China, 1000–1700, Berkeley: University of California Press, 1996, p. 48. 3 Mark Elvin, The Pattern of the Chinese Past, Stanford: Stanford University Press, 1973, pp. 113–199. 90 chapter two using copper for private purposes, the issue of large denomination coins, the lowering of the coins’ copper content (Northern Song: 65 percent cop- per, 25 percent lead, 10 percent tin; Southern Song: 40 percent copper, 50 to 60 percent lead, 5 percent tin) and the production of cheap iron-lead-tin coins, known as “tin-alloy-cash” ( jiaxiqian 夾錫錢).4 Bills of exchange for the transfer and exchange of cash and commodi- ties had been known since the Tang period, especially the so-called “flying cash” ( feiqian 飛錢) or “convenient exchange” (bianhuan 便換) system developed by merchants and the government in the eighth century. The reasons for the introduction of this system were a) a shortage of coins, b) bans on exports of coins in certain localities, c) tax remittances, espe- cially on the basis of the complementary north-south flow of money aris- ing from tax revenue on the one hand and the tea trade on the other, and d) the slowing-down of commercial activities due to the inconven- ience of carrying heavy cash.5 Such promissory notes known as bianqian huizi 便錢會子 (convenient-cash account notes) and jifu huizi 寄附會子 (remittance account notes) continued to be used in private and official transactions from the 960s onwards. In the iron-coin zone of Sichuan “exchangelings” ( jiaozi 交子) had probably been first issued freely as substitutes for iron coins, but were later taken over by sixteen officially recognized rich merchant houses having them circulated widely and in large quantities. When around 1022 this system broke down, the government stepped in and took over the responsibility for the paper money issued in denominations from one to ten guan 貫 (“strings”), later to be reduced to two denominations only— namely, 5 and 10 guan. Apart from a discount charged for their issue, these paper notes were declared to be fully convertible against iron coins, and their period of issue was limited to three years. These exchange notes can be considered to be the first true paper money.6 In 1160, with mounting military costs due to the resumption of war with the Jurchen Jin regime, the Southern Song (1127–1279) government cre- ated a new type of paper money which was first circulated within speci- fied regions of the empire, but gradually was enlarged to include most of the Southern Song territory. In the beginning, the government issued 4 Von Glahn (1996), pp. 49–51. 5 Peng Xinwei (author); Edward H. Kaplan (transl.), A Monetary History of China (Zhongguo huobi shi), Bellingham, Washington: Western Washington University (East Asian Research Aids and Translations), 1994, vol. 1, pp. 329–331; Elvin (1973), p. 155. 6 Elvin (1973), pp. 155–159; Peng Xinwei (1994), pp. 367–378..