The secret of the alchemists Paper money - a Chinese innovation

Ming Dynasty (1368–1644)
1 Kuan, after 1375
Issued by: Emperor Taizu
Measurements: 3.2 x 22.3 cm
Paper: Mulberry bark
Typ of printing: Letterpress
Promise to pay: “Circulating paper money of the Empire of the Great Ming, which is to be used in the same way as copper cash.”
Penalty: “Anyone producing counterfeit notes shall be beheaded. Anyone finding and turning in a counterfeiter shall be rewarded with 250 taels of silver as well as the perpetrator’s fortune.”

When the Venetian merchant Marco Polo saw money being made from paper at the court of the Grand Khan of the Mongols in the last quarter of the 13th century, he found the process almost magical: "In the city of Kambalu is the mint of the Grand Khan, who may truly be said to possess the secret of the alchemists, as he has the art of producing money.” Money, which had traditionally been made from scarce metals in both Europe and China, was suddenly being produced using a renewable raw material – paper made from the bark of the mulberry tree. In Europe, the value of a coin was backed by the price of its metal; in China, the value of a note was backed by its printed promise of payment. The ability to print as much paper money as desired, as if by magic, lifted the natural limitations on the supply of metal coins fit for circulation.

In his travelogue, Marco Polo wrote about the Chinese empire, which had been under the rule of the Mongols – better known as the Yuan Dynasty – since 1260. However, the Mongol ruler Kublai Khan did not invent paper money, nor was the paper money at the Mongol court the miraculous result of alchemy. At the time, paper money had already been in use throughout the Chinese empires for three and a half centuries. According to current research, it originated in around 1024 when the government adopted and transformed the idea of “flying money”, certificates backed by deposited coins. From then on, certificates were no longer personalised and were declared to be legal tender. Because paper is such a fragile material, very few, of these first banknotes are extant.

The first surviving notes were discovered during the Boxer Rebellion (1899-1901), when soldiers found several 1 kuan notes dating back to the Ming Dynasty underneath the base of an overturned statue of Buddha. As well as decorative designs, various official inscriptions and seals can be seen on the large, fragile notes.

The official inscription on this banknote reveals its origin. The words Da Ming tong xing baochao (Great Ming [Dynasty] circulating treasure note) are inscribed at the very top of the note. These notes are not the Yuan Dynasty notes described by Marco Polo, but are an example of the notes produced by the next dynasty.

In the mid-14th century, the stability of the Yuan Dynasty was increasingly threatened by various groups of Chinese rebels. As the leader of a splinter group of the Red Turbans, the former monk Zhu Yuanzhang overthrew the Mongol Dynasty, consolidated his power and founded the Ming Dynasty in 1368. He assumed the temple name Taizu and his era was known as “Hongwu” (“vastly martial”). He left the existing monetary system unchanged and, in 1375, issued paper money in the style of the Yuan Dynasty.

Kublai Khan’s paper money was a stable currency, but his successors’ excessive production of paper money led to inflation. The new Ming Emperor Taizu was not able to restore order to the monetary system. In order to force the people to accept paper money, his government attempted to ban the use of the far more popular silver tael and copper cash coins, but with little success. 

The value of the note is displayed in several places: the inscription above the image area tells us that this is a 1 kuan note. Its value is also shown in an illustration: ten strings of cash coins, each consisting of nine coins, not ten. We know that a 1 kuan note was worth 1,000 cash coins in 1375, but that 1 kuan was only worth 71 coins in 1398. An exchange rate was also established between paper money and coins for the first paper money issued by the state in 1024: one paper kuan was worth 770 coins. We cannot be certain whether the illustration took this loss in value into account. Further Ming notes worth 100, 200, 300, 400 and 500 cash were issued.