First Bank Notes in the World

The use of paper money as a circulating medium is intimately related to shortages of metal for coins. In ancient China coins were circular with a rectangular hole in the middle. Several coins could be strung together on a rope. Merchants in China, if they became rich enough, found that their strings of coins were too heavy to carry around easily. To solve this problem, coins were often left with a trustworthy person, and the merchant was given a slip of paper recording how much money he had with that person. If he showed the paper to that person he could regain his money. Eventually from this paper money "jiaozi" originated.

In the 600s there were local issues of paper currency in China and by 960 the Song Dynasty, short of copper for striking coins, issued the first generally circulating notes. A note is a promise to redeem later for some other object of value, usually specie. The issue of credit notes is often for a limited duration, and at some discount to the promised amount later. The jiaozi nevertheless did not replace coins during the Song Dynasty; paper money was used alongside the coins.

The successive Yuan Dynasty was the first dynasty in China to use paper currency as the predominant circulating medium. The founder of the Yuan Dynasty, Kublai Khan, issued paper money known as Chao in his reign. The original notes during the Yuan Dynasty were restricted in area and duration as in the Song Dynasty, but in the later course of the dynasty, facing massive shortages of specie to fund their ruling in China, began printing paper money without restrictions on duration. By 1455, in an effort to rein in economic expansion and end hyperinflation, the new Ming Dynasty ended paper money, and closed much of Chinese trade.

Ming Dynasty notes are the earliest surviving paper money, of which the 1 Kuan is the most common. The note, 220mm x 340mm, is also one of the world's largest banknotes.