Credit Money

“Credit money” is a form of currency whose value depends on the trust that users have in it, rather than its intrinsic value. Early on, both China and the West used cheap metal for large-amount legal tender coinage. Later on, as commerce developed, the disadvantages of metal currencies started to show: they were too heavy to carry in large quantities but too small in value to settle large transactions. Given these disadvantages, once paper and printing had been invented, it did not take long for paper currencies to follow. Paper currency first developed in the Northern Song Dynasty (960-1127 CE) in China. The jiaozi, a type of promissory note or certificate that allowed the stated value to be claimed in a different location, was issued by the government and circulated throughout the country. This same currency was also used in several subsequent dynasties.

The first bill of exchange in China was the Tang Dynasty’s feiqian. Large-scale exchange started in piaohao, or exchange shops, in the late Qing Dynasty (1644-1911 CE). Exchange shops were similar to modern banks in that they provided services such as money transfers, deposits, and loans.

The first national bank in the world to issue banknotes was the Bank of England in the 17th century. Influenced by the West, in the 31st year of Qing Emperor Guangxu’s reign (1905 CE), China set up the Ta-Ching Government Bank to issue exchange certificates. This marked the beginning of banknote issuance in China.