China may have been the first country to experiment with paper money, but modern finance took off in Europe rather than the Far East. In the West, banks and credit markets seeded the growth of capitalism. By contrast, China gave up on paper money long before Columbus set sail for the New World. From the 15th century through the 1930s, the Chinese were stuck with silver money. Without access to credit, the Middle Kingdom yielded economic primacy to England and later the United States. This important story is related in “Empire of Silver,” a quirky, though instructive, monetary history by Jin Xu, a Shanghai-based editor at the Financial Times Chinese.
Paper money, Ms. Xu tells us, dates back to the Tang dynasty in the ninth century, when the authorities allowed merchants to exchange bronze coins for promissory notes, known as “flying cash.” Two centuries later, in the time of the Song dynasty, merchants in Sichuan were using private exchange notes in place of the cumbersome iron coinage. The Song emperor issued his own paper money against deposits of coin. The jiaozi, as these notes were called, proved so popular that they traded at a premium to cash.
Read Full Article »