How China created the world's first paper currency : The Indicator from Planet Money Paper currency has become standard around the world, but that wasn't always the case. Planet Money host Jacob Goldstein tells the story of how paper money came to be — and why it temporarily went away.
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The Invention Of Paper Money

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The Invention Of Paper Money

The Invention Of Paper Money

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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Hi, Jacob.

GOLDSTEIN: I'm back.

VANEK SMITH: You're back.

GOLDSTEIN: Let's do another show.

VANEK SMITH: Did you bring props?

GOLDSTEIN: I got props.

VANEK SMITH: I'm coming.

GOLDSTEIN: Come down.

Hi, Stacey.

VANEK SMITH: Hi, Jacob. How are you?

GOLDSTEIN: Nice to see you again.

VANEK SMITH: It's nice to see you.

Jacob, last week, you came to us with this great story about money from your book "Money: The True Story Of A Made-Up Thing." And this week, you're bringing us another one.

GOLDSTEIN: It's a big one. It's the invention of paper money.

VANEK SMITH: That is huge. And you promised props.

GOLDSTEIN: I got props.

VANEK SMITH: Oh, this is good. I'm very excited.


VANEK SMITH: I'm Stacey Vanek Smith. Today on the show - the invention of paper money.

GOLDSTEIN: Yes. And also, it's the story of the sort of fundamental economic miracle of an entire society starting to rise out of poverty, of almost everybody becoming better off. And then it kind of gets worse. It kind of all goes south.


VANEK SMITH: So our story is set in China around the year 1000 A.D. People in Asia and Europe have been using metal coins for more than a thousand years by this point. In Europe and the Middle East, they're using silver and gold for coins. In most of China, they're using bronze. And the basic way it works is this. The value of the coin is based on the value of the metal in the coin. So for example, a gold coin is worth more than a silver coin of the same size because gold is worth more than silver.

GOLDSTEIN: And our big moment, our big breakthrough in the history of the money comes in a province where they are using not gold or silver or even bronze coins but coins made from iron.

VANEK SMITH: That sounds so hardcore - iron coins.

GOLDSTEIN: That's hardcore. Well...

VANEK SMITH: You want to buy a beer with iron.

GOLDSTEIN: ...Actually, terrible coins...


GOLDSTEIN: ...Because iron is not worth much, right? So we're in this world, as you described, of, like, the value of the coin is the value of the metal. Iron isn't worth much, so you need a lot of iron coins to buy anything. You need - like, to buy a pound of salt, you need a pound and a half of iron coins.

VANEK SMITH: Oh, my God.

GOLDSTEIN: So, OK. So it's this province called Sichuan where they're using iron coins. And around 1000 A.D., some merchant - we don't know who - has this idea. He says, OK, you can store your iron coins with me, and I'll give you a paper receipt in exchange for the coins.

VANEK SMITH: OK, Jacob, so let's say you are a merchant. You own a store. I decide to give you a thousand iron coins.

GOLDSTEIN: I give you just one piece of paper. And the piece of paper says anybody who has this piece of paper can come into my shop, and I will give them a thousand coins. It's like I'm giving you a coat check ticket. But instead of a coat, it's for a giant string of iron coins.

VANEK SMITH: And so if I want to buy something from someone else that is for a thousand iron coins, let's say, instead of giving them a thousand actual iron coins, I could give them this coat check ticket that you gave me. So now this piece of paper is becoming money.

GOLDSTEIN: This is it. The thing is happening.

VANEK SMITH: It's happening.

GOLDSTEIN: And it's a good idea. It spreads to other merchants. It spreads around the province. The government - the local government takes it over. And then it spreads to all of China. So none of the earliest actual pieces of paper survived, but there is this metal printing plate from this area, you know, from a thousand years ago or so.

VANEK SMITH: Oh, that they made the paper money from.

GOLDSTEIN: Right, that they used to print the money - and so here I got a reproduction of that that I'm going to give you.

VANEK SMITH: Oh, this is cool. It looks like a wood block almost. I guess it's out of metal, though.

GOLDSTEIN: Yeah, yeah. It's a block print.

VANEK SMITH: It's very ornate. There's, like, a little flower design. And then there's just a whole bunch of Chinese characters.

GOLDSTEIN: Yeah. It's mostly characters.

VANEK SMITH: Yeah, yeah.

GOLDSTEIN: It's mostly writing, right?

VANEK SMITH: Do you know what it says?

GOLDSTEIN: And so - here. I have - yeah, I have the translation as another prop.

VANEK SMITH: Oh, OK. By imperial decree, criminals who counterfeit this money are to be punished by beheading. OK, wow. There's a reward.


VANEK SMITH: If you turn someone in for counterfeiting, you're going to get a reward. If you help somebody who is counterfeiting, you're toast. This is like a long death threat.

GOLDSTEIN: Yes. Yes. The first paper money is basically a warning, saying, don't counterfeit paper money.

VANEK SMITH: I know what you're thinking. You're thinking, this is paper money. I could just make this myself.

GOLDSTEIN: I know what you're thinking. It's a piece of paper.

VANEK SMITH: Don't even think about it.

GOLDSTEIN: Also, fun fact - this plate that's, like, the first, you know, paper money we know of...


GOLDSTEIN: ...Probably a counterfeit.


GOLDSTEIN: Good chance it's a counterfeit.

VANEK SMITH: Really? Well, you know, they are going a little over the top in the threats, right?

GOLDSTEIN: Whatever you do (laughter)...

VANEK SMITH: I think the paper money doth protest too much, right? (Laughter).

GOLDSTEIN: So there was clearly counterfeiting from the beginning, basically. But despite that fact, paper money worked. It was, like, a huge success in China. There was no motorized transportation, so moving around big piles of metal was really costly, right? So paper money is a new technology, right? It's an efficiency gain...


GOLDSTEIN: ...That makes it much easier to buy and sell stuff, especially at a distance, right? And so once paper money comes in, you see trade increasing in China. People are buying more stuff across greater distances.

VANEK SMITH: Just because it's so much easier to bring money with them.

GOLDSTEIN: And that makes it easier for people to specialize, right? You have a bigger market essentially. So you see some people - they start fish hatcheries to grow fish.


GOLDSTEIN: And you see other people start orchards of mulberry trees. And they have silkworms to eat the leaves and make silk, and then they use the bark to make paper. And you see other technologies starting to emerge at this time. You see moveable type, the magnetic compass. Farmers are getting better at growing rice. And so it's this real flourishing. Cities are growing, right? It's easier to have cities when you have more trade. The southern capital in China has a million people, which is, like, 10 times what, you know, is in London or Paris at this time.


GOLDSTEIN: There's a restaurant scene. This is a moment when, like, ordinary people in China start to get richer.

VANEK SMITH: So all this is kind of spurred on by just the fact it's so much easier to spend money, to trade.

GOLDSTEIN: That's definitely part of it. I mean, there is this broader thing going on. Like, paper money is making it easier to trade. Also, the government is just more open to trade and markets and exchange. Also, there's these technological improvements, and they're all kind of feeding into each other to create this great economic moment.

VANEK SMITH: And then the Mongols show up.

GOLDSTEIN: The Mongols.

VANEK SMITH: So, yeah, the Mongols conquer China. This is the 1200s now. Paper money has been around for a few hundred years at this point. And the Mongols loved paper money. I mean, they were, like, always on horses, right?

GOLDSTEIN: They're on horses. They're going all the way across Asia.

VANEK SMITH: Yeah. You want to be light. You want to stay loose.

GOLDSTEIN: And when Kublai Khan - he's the grandson of Genghis...

VANEK SMITH: Like in "Xanadu"?


VANEK SMITH: Really? That guy?

GOLDSTEIN: Yes. Yes, "Xanadu" did Kublai Khan. He takes the next step with paper money. He says this is no longer a receipt, an IOU that you can turn in for, you know, metal coins. He says now paper money is just paper.

VANEK SMITH: He kind of goes off the gold standard - early days.

GOLDSTEIN: He goes off the bronze standard.

VANEK SMITH: Or the iron standard.

GOLDSTEIN: Yeah. Yeah, yeah. It was mostly bronze. And maybe, surprisingly - I don't know - it worked.

VANEK SMITH: Yeah. I mean, I guess, if Kublai Khan's like, this is real money or I'll kill you, like, I'd spend it (laughter).

GOLDSTEIN: Yes, that was definitely part of it. Also, though, I mean, I think part of it was, you know, they had been using paper money in China for a few hundred years by this point. And I think people realized by this point that if, you know, the government has its act together and people believe that paper is money, then paper can be money. I mean, that's essentially the story today, right?


GOLDSTEIN: And so it seems reasonable that it was the story then.

VANEK SMITH: It seems like this is the end of the story. All is well - happy ending. But it is not the end of the story.

GOLDSTEIN: It's not. No, there is a rebellion. The Mongols are driven out. And the new rulers, the Ming dynasty - they want to go back. They want to go back in time to this idealized, agricultural past, when, instead of relying on trade and money and specialization, China was made up of agricultural villages that were largely self-sufficient. And eventually, the Ming rulers succeed. China does, in a lot of ways, go back. After a bunch of inflation, when paper money becomes worth less and less, the rulers even give up on paper money altogether.

VANEK SMITH: So it's back to bronze coins.

GOLDSTEIN: Yeah, back to bronze coins, sometimes, just lumps of silver. People in China who had been getting richer are now getting poorer, like, generation after generation. And China won't really get back on track economically for hundreds of years.

VANEK SMITH: This is an interesting story because I feel like the story we often have of progress in economies is just growth. Like, maybe there's a setback, like, a little short one, like a recession. But it's, like, growth, growth, growth, technological progress.

GOLDSTEIN: In general, you know what direction you're going.

VANEK SMITH: Yeah. And it's interesting that, like, this can go backwards.

GOLDSTEIN: Yes, a lot backwards.


VANEK SMITH: You can find this story and more like it in Jacob's new book "Money: The True Story Of A Made-Up Thing." This episode of THE INDICATOR was produced by Darian Woods and Jamila Huxtable. It was fact-checked by Sean Saldana. THE INDICATOR is edited by Paddy Hirsch and is a production of NPR.


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